How to make $168,142 in 48 hours frontrunning Coinbase

The big news this week is Coinbase’s insider trading fiasco.

At least, it’s being reported as insider trading. But no one really knows at this point. Coinbase could have accidentally leaked the insider information via an API or even a draft blog post.

Either way, someone got access to a big list of cryptos Coinbase is considering listing, 24 hours before the list was made public, and bought around $400,000 of them.

The next day, Coinbase publishes this blog post, which hilariously opens with:

Starting immediately and as part of an effort to increase transparency by providing as much information symmetry as possible, Coinbase will be using this blog post as a pilot to communicate assets under consideration for listing in Q2 2022.

By the following afternoon, our insider is up about 42%, or roughly $168,142. [i]

Not bad for two days’ work.

The only problem is, they got caught. Sort of.

Crypto’s merry twitter prankster, Cobie, did some sleuthing and uncovered all the gory details:

Within hours the crypto world was up in arms. I’ve even seen it posted on some non-crypto sites.

But there are two questions no one seems to be able to answer.

1. Was it illegal? Sure in the traditional financial world, trading on insider information is most definitely go-to-jail worthy illegal. But in crypto the rules are murkier.
2. Who is the insider?

I’m sure as this story progresses, we’ll get answers to both these questions. But right now it’s too early to say.

It certainly isn’t doing Coinbase’s credibility any favours though.

Crypto Venture Capitalists are rebranding to Venture Contributors (although the main thing they contribute will remain capital)

Katie Haun is one of the biggest names in crypto, and she’s done a lot to bring in into the mainstream.

I’ve heard her on popular podcasts like the Tim Ferriss show, and seen her quoted in many different mainstream publications.

She’s also been on the board of directors of Coinbase since 2017 and a general partner at pretty much the crypto Venture Capitalist (VC), Andreessen Horowitz. Also known as a16z.

But at the end of March, she announced she was launching her own crypto fund, with an impressive cash pile of $1.5 billion.

And instead of a Venture Capital fund, this will be a “Venture Contributor” fund. Interesting.

Here’s how she describes it:

We believe the next generation of the internet will naturally produce a new generation of investors. Firms built for this moment need to be what one of our portfolio founders characterized as “venture contributors.” This goes beyond asking how to be helpful — it’s about being an active, committed participant in the community and operating in a way that advances the values of web3.

Hmm, doesn’t really clear it up, does it?

She gets more specific:

First, we’re helping founders deliver system change. …

To create a new internet that is an improvement over our current tech paradigm is a hugely ambitious project. It not only requires brilliant technologists to build but also experienced operators who can responsibly shape public opinion, policy, and the broader systems that power our society so that web3 can fulfill its potential.

Okay, so they’ll also be doing PR.

What else?

Second, we’ve baked community participation into our practices from day one. As an early investor in the space, I’m proud of the groundbreaking program I helped develop to delegate governance rights and tokens to civil society groups, universities, and non-profit organizations.

Ah, if you follow that link, it goes to this tweet thread:

So basically, Venture Contributors will also decide who gets to participate in governance. After all, they’ll own most of the governance tokens, so they will get to choose who they let vote.

I find it interesting that she couches this as “removing gatekeepers”. Kind of seems like she sees Venture Contributors as being literal gatekeepers, deciding who gets voting rights and in what quantities.

She literally says:

Crypto is about removing gatekeepers. This requires stakeholders like us to think critically as to our role in the process and how we can best contribute to protocol governance. While there are many ways we look to do so, we are strong proponents of token delegation.

But if you own the tokens and you decide who you delegate them to. You are, by definition, a gatekeeper.

Oh well. At least this new breed of Venture Capitalists Contributors are trying. Or just duping us with clever language.

Another big name in VC land is Sequoia. It’s been around since 1972 and has around $80 billion at its disposal.

In February this year it launched “a new $500-600M sub fund focused primarily on liquid tokens and digital assets.”

Why is this a big deal? Because it will be buying into crypto directly, not just the companies that create projects, but the projects themselves.

This is quite a departure from how many VCs do it. They tend to buy into an exchange or a developer company or something peripheral.

If VCs realise there’s more money to be made buying into crypto directly, which seems to be the case here, it could have a profound effect on the market and the industry as a whole.

It’s clear we’re seeing a shift in how big money players view crypto.

They’re now investing directly. Of course, I’m sure they were before as well. But now they’re broadcasting it.

I guess the big question is, will institutions and big money players eventually push regular people out of the market?

It’s hard to say. But the thing about crypto is it’s very hard to exclude ordinary people from taking part. That’s basically the point of it. So it’s going to be interesting.

Maybe everyone will just get along.

Something that might come to bite everyone down the line though is voting power. And these VCs are making it clear that they plan to take control of voting power.

So maybe we’ll just end up back at square one with the institutions controlling the system after all?

I’m sure people smarter than me are trying to come up with ways they can ensure this won’t happen. But I’m sure people equally as smart as them are working for institutions, trying to work out how they can take control of the market.

Meanwhile, in kind of related news, Grayscale is launching its new Ethereum competitor fund.

This fund, called the “Smart Contract Ex-Ethereum” fund invests in… yes, you guessed it, smart contract cryptos, excluding Ethereum.

According to its press release, the fund had the following weightings at launch:

• Cardano (ADA), 24.63%
• Solana (SOL), 24.27%
• Avalanche (AVAX), 16.96%
• Polkadot (DOT), 16.16%
• Polygon (MATIC), 9.65%
• Algorand (ALGO), 4.27%
• Stellar (XLM), 4.06%

If you’re a regular reader, you’ll know that Grayscale has a monumental amount of crypto in its funds.

Its Bitcoin trust currently has $25.5 billion assets under management, and its Ethereum one has $9.3 billion.

When Grayscale decides to buy into a crypto, it buys in big.

This new fund only has around $4 million assets under management at the moment, but we can expect it to grow significantly over the coming months and years.

The EU wants to create the biggest honeypot in human history

Last month, the EU, which has previously been very sensible in its crypto regulation, made an awful decision which will endanger the lives of everyone who invests in crypto.

Basically, it wants all self-hosted crypto wallets to be part of the public record.

So kidnappers, robbers, criminals etc. could look up a wallet address, see the balances, see who owns it and see where they live.

What a fantastic idea.

From CoinDesk:

European Union lawmakers voted today in favor of controversial measures to outlaw anonymous crypto transactions, a move the industry said would stifle innovation and invade privacy.

More than 90 lawmakers voted in favor of the proposal, according to documents seen by CoinDesk.

The proposals are intended to extend anti-money laundering (AML) requirements that apply to conventional payments over EUR 1,000 ($1,114) to the crypto sector. They also scrap the floor for crypto payments, so payers and recipients of even the smallest crypto transactions would need to be identified, including for transactions with unhosted or self-hosted wallets.

And just to give you an idea of what this law would lead to, @trading_peter made this handy demonstration:

As usual with things governments decide, I don’t really know what ordinary people can do to stop this.

Oh, the irony.

But thankfully the industry is fighting back. Coinbase has been particularly vocal about it. Whether it has any effect is another matter though.

The National Law Review reports that the regulations will next be discussed in mid-April and a result is likely mid-to-late July.

I’ll keep you posted.

Gary Gensler strikes again, bans non-rich investors from earning interest on crypto

In another win for the little guy, the US Securities and Exchange Commission, under Gary Gensler’s command, has forced Celsius to stop non-accredited investors from earning interest on their crypto.

From Decrypt:

U.S. and state regulators have been taking aim at crypto rewards platforms such as BlockFi and Celsius for the last year. In a direct blow, the latter has agreed to stop paying rewards to non-accredited (read: financially well-off) U.S. investors on any new deposits starting April 15.

Accredited investors will still be eligible for rewards, as will non-accredited customers' assets that are already held by Celsius. The new rules don't apply to non-U.S. customers.

Because only rich people should be able to earn more interest than banks offer?

I don’t know. It’s hard to square this one.

I guess the argument is that earning interest on stablecoins and crypto is risky and so only accredited investors should be allowed to take that risk because they can afford to lose money.

But the real reason, we all know, is because if ordinary people realise they can earn 8% interest on stablecoins using Celsius, BlockFi, Crypto.com et al, then the banking industry, which offers less than 1%, would be screwed.

Want to know if your favourite exchange can be trusted? Here’s a handy list

This week, Crypto Compare released an in-depth report into crypto exchanges. It’s a pretty good resource for seeing which exchanges are reputable.

Here’s a list of its top 30 (click to zoom in):

And here’s a link to the full report if you want to read up on its methodology.

Specific crypto news

Ethereum 2.0 delayed again

Everyone was hoping the “merge” – where Ethereum moves to Proof of Stake and launches as Ethereum 2.0 – would happen in June.

But this week a lead Ethereum developer dashed all out hopes and announced another delay. Stating, the new date is “likely in the few months after June”.

Of course, other developers were quick to say they had never actually set a date of June. They haven’t set a date at all. So they haven’t delayed because they aren’t aiming for a date.

It’s the same argument IOTA uses for coordicide. They took all the dates off their roadmap so no one can say they’re missing deadlines.

So I guess we will hopefully see Ethereum 2.0 around September/October? Who knows?

Solana NFTs added to OpenSea

OpenSea, the world’s biggest NFT marketplace has started supporting Solana-based NFTs as well as Ethereum ones.

I feel like this is kind of a big deal. Up until now OpenSea has only listed Ethereum, Ethereum sidechain Polygon and Klaytn NFTs.

Which platform crypto will be added next?

IOTA’s Assembly and Shimmer networks both launching by the end of this year

If you read my IOTA deep dive, you’ll know all about Assembly and Shimmer.

If not, well, Assembly is a smart contract network based on IOTA and Shimmer is an incentivised testnet for IOTA.

IOTA doesn’t like to give timelines for things anymore because it always misses them and people get understandably angry.

Coordicide has been promised every year since 2019. Now it doesn’t even have a timeline.

Which makes it highly unusual that IOTA co-founder, Dominik Schiener made a public announcement that both Assembly and Shimmer will launch their networks this year:

And on that note, IOTA staking is starting up for Assembly again on the 19^th of April. Here’s a link to the official blog post about it. It takes you through everything you need to do step by step, if you hold IOTA and want to participate.

Terra continues its bitcoin buying rampage, now adds $100 million Avalanche as well

If you read my article, Too big to fail? Terra is taking over crypto, you’ll know that Terra (LUNA) is buying up a LOT of Bitcoin.

It aims to get a reserve of $10 billion in Bitcoin to back up its UST stablecoin. And it’s been buying consistently since January.

Here’s a snapshot of where it’s at so far:

As you can see, it already has $1.7 billion worth of Bitcoin and about $550 million worth of Ethereum stablecoins. Now it’s also adding $100 million of Avalanche into the mix.

Like I said in that article, Terra, and its founder Do Kwon, are really keeping the world of crypto entertaining.

IOTA developer Hans Moog praises Aleph Zero

Here’s an interesting one. Hans Moog, one of the biggest names in IOTA, has called Aleph Zero, “very close to the best totally ordered DLT you could possibly ever build.”

That’s high praise coming from someone like Hans Moog.

However, he does go on to say that he thinks the future of DLTs won’t be totally ordered, but casually ordered, like his vision for IOTA.

But he still has a lot of good things to say about Aleph Zero:

I am a big fan of AlephZero because it is very close to the optimal totally ordered consensus and I like when people strive for perfection.

But I believe that causally ordered consensus mechanism will ultimately prove to be superior for a L0/L1 settlement layer as they give you more computational throughput and are also inherently more decentralized because you can tap into social consensus to secure the DLT and don't have to limit your validator set to a few dozen - hundred nodes.

Nevertheless, there is still a need for totally ordered smart contracts especially in the setting of rollups and I would really like to use AlephZero's tech for L2 totally ordered smart contracts on IOTA at some point.

If you want to know more about Aleph Zero, you can read my deep dive here.

Aleph Zero has been bucking crypto price trends since I wrote that deep dive. It’s up more than 140%, while the overall market is only up 8%.

Please don’t take that as an incitement or inducement to invest though. It’s just an observation. Its price could just as easily crash as go up more.

Surprise, surprise Coinbase lists Mina Protocol

And to come full circle back to Coinbase listings, on the 6^th of April, Coinbase officially listed Mina protocol.

If you’ve read my Mina Protocol deep dive this won’t have come as much of a surprise. As I said, Coinbase Ventures is one of Mina Protocol’s backers, so it was just a matter of time before it was listed.

Ah, but what happened to the price?

Well, it went up, then it went down again.

On the 3^rd of April, Mina hit a low of around $2.60. then on listing day it peaked at about $3.37 for a 30% gain.

Then it dropped over the next few days, and at time of writing it’s trading for $2.31. So basically, back where it started.

People are always super excited when a crypto gets listed on a big exchange. But it’s impossible to say what effect it will have on its price in the long run.

Usually, in the short run it does exactly what Mina did. Goes up, then goes back down. But it’s fun to watch.

Okay, that’s all for this week.

Thanks for reading.

Harry

[i] Numbers taken from this article: https://decrypt.co/97631/ethereum-trader-400k-tokens-coinbase-before-public

Adding up by me:

$88,942.48 buying KROM, 40% up, $35,577 profit.

$80,023.48 on DFX, 42% up $33,610 profit.

$72,299.45 on RADAR, 53% up $38,318 profit.

$70,635.74 on RAC, 22% up $15,540 profit.

$64,864.59 on NDX, 43% up $27,892 profit.

$27,309.96 on PAPER, 63% up $17,205 profit.

Total spend: $404,073.

Total profit: $168,142.

Full disclosure: At time of writing, I held the following cryptos: Ethereum, IOTA, Radix, Mina Protocol, Aleph Zero.

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