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This month in crypto: beware the ides of March

I know I say this every issue, but there really is a ton of crazy and interesting stuff going on in crypto right now. We’ve got about 7,000 words' worth of it in today’s issue.

Harry Hamburg
Harry Hamburg
28 min read
This month in crypto: beware the ides of March
The Death of Julius Caesar (1806) by Vincenzo Camuccini (public domain)

Who would have thought crypto would play such a major role in the biggest war in Europe since WWII?

Ukraine has received more than $100 million in aid, directly through crypto. And Ukraine’s Deputy Minister of Digital Transformation, Alex Bornyakov, has been keeping people up to date with what they’re using the donations for.

On the 11th of March he wrote:

Crypto assets proved extremely helpful in facilitation of funding flows to the Amed Forces of Ukraine. Huge thanks to everyone who donated to the Crypto Fund of Ukraine. Each and every helmet and vest bought via crypto donations is currently saving Ukrainian soldiers' lives.

And tweeted an infographic on what the crypto donations have bought so far:

Image
Source: Twitter

He told the New York Times that an advantage of using crypto is how quickly the funds can be put to use:

“In a situation like this, where the national bank is not fully operating, crypto is helping to perform fast transfers, to make it very quick and get results almost immediately,” he said.

But he was careful not to go full “crypto bro”, adding: “I don’t think crypto is playing a major part. But its role is essential in this conflict in terms of helping our army.”

Meanwhile, all the top comments on that article (as is usual with any New York Times piece about crypto) insisted that crypto is a useless ponzi that’s destroying the world and its only use is facilitating crime.

For example, here’s one of the top-rated comments, with 80 recommendations:

Graphical user interface, text, application, email

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Source: New York Times

There are many, many more in the same vein.

I thought that was funny as you literally have a minister whose country is being invaded saying “crypto’s role is essential in this conflict in terms of helping our army”. Then you have a wall of recommended comments basically telling him that he’s wrong and they know better.

It’s… incredible.

I know I am bias. But the cognitive dissonance of (some) New York Times readers is off the charts.

Ah, but what about Putin and his cronies using crypto to evade sanctions?

The logical argument here, which I’ve seen over and over again in the last couple of weeks, is that Bitcoin is a terrible way to try do anything in secret.

Which you’ll know because you read my deep dive into Monero that I wrote way back in 2017: Is Monero the best privacy coin? Well, it's stumped the FBI...

But the actual numbers back up this argument, too.

From CoinDesk:

The U.S. government has even gone out of its way to say this [Russia using crypto to evade sanctions] isn’t happening. Todd Conklin at the U.S. Treasury Department recently told TRM Labs' Ari Redbord in a webinar that crypto isn’t being used as a tool to evade sanctions, at least not in Russia at this time.
The Financial Crimes Enforcement Network (FinCEN), the Treasury Department’s money-laundering watchdog, supported that view yesterday by publishing a statement warning that while individuals might turn to cryptocurrencies to bypass sanctions, the Russian government doing so “is not necessarily practicable.”
Part of that is because the industry just doesn’t have sufficient liquidity to meet the needs of a sovereign nation, Redbord later told me. …
Furthermore, the Russian government has put precisely zero effort into creating the necessary infrastructure to operate a crypto-based alternative to its current dollar economy. (In fact, the Russian central bank appears to have kept quite a bit of its war chest in dollars in offshore accounts that have now been seized.)

Ah, but what about the Oligarchs? Turns out they’re not using it either.

“We’re not seeing the large types of inflows we would see that would be indicative of inflows of large amounts of money that would correspond to a significant amount of an oligarch’s net worth,” says Salman Banaei, head of public policy at Chainalysis.

(Chainalysis are the crème de la crème of crypto detectives. They’re the ones who governments turn to when they need to trace some bad crypto dealings.)

Okay, that’s enough war stuff. Let’s take a look at what’s been happening in crypto itself.

The Polygon saga continues

Polygon, the layer-2 scaling solution formerly known as MATIC network, has been making the rounds in legacy media lately.

It tends to be mentioned in most Financial Times articles that mention Ethereum. Like this one. I would guess it’s got some good PR people doing the rounds.

But Polygon’s beginnings weren’t quite so polished. If you’re a long-time reader you might remember that back in December 2019, its early investors pulled a monumental pump and dump.

I covered it at the time (and to this day it’s still one of my most viewed articles).

Matic Network was one of the first really well-known IEOs [Initial Exchange Offerings]. And people got very excited about it.
They got even more excited as it climbed a staggering 1,493% in just over four and a half weeks.
Imagine making sixteen times your money back in just over one month…
And then imagine seeing its value fall off a cliff.
In just under two days, Matic Network lost 50% of its price.
True, IEO investors were still nicely up. But many people who’d jumped in as the hype train left the station were left with empty hands.
But this is to be expected with an ICO/IEO. People get in at a low price, and if the market takes an interest in the project, they can make a killing in a very short space of time.
It’s par for the course.
However, it doesn’t usually happen twice.
Fast forward to August and Matic Network is back on a spree, thanks to a shoutout from Coinbase.
On the 5th of August 2019, Coinbase announced it was considering adding eight new coins, one of which was MATIC.
Matic Network jumped 60% in less than 24 hours on the back of that announcement. And this time, after a little hiccup, it maintained its price.
Then came November, and one of the most shocking pump and dump scams we’ve seen in crypto for a very long time.
You can see it play out on the chart below:
Matic Network major pump and dump
Source: coinmarketcap

Matic Network climbed around 240% in just over two weeks. And then crashed 70% in less than one hour.
There was no hack. There was no bug in the code. There was no bad news of any kind. It was simply just a very well-orchestrated pump and dump.
With rumours flying around that Matic Network itself was behind the pump and dump, Binance’s CEO, CZ was forced to come out and defend the team publicly.
Binance CZ defends Matic Network
Source: twitter
However, it was a bit of a coincidence that Matic Network itself had transferred 3% of its total supply to Binance in the 50 days leading up to the mega dump. (Source CCN.)
And the fact remains, no matter who carried it out, this was a pump and dump scam on a grand scale, and it caught a great many crypto investors out.

It’s been more than two years since that big pump and dump, so no one really remembers it anymore.

Today, MATIC is called Polygon, and it’s one of the most hyped Ethereum layer-2s out there.

And of course it helps that it’s also up a ridiculous 10,482% since the pump and dump.

Anyone who’d held since then would be more than 100x up today.

Even if they’d bought right at the very top before the dump and held till today, they’d still be up around 33x. Which is also ridiculous. But it shows just how big that pump and dump was.

Anyway, Polygon is currently the talk of the town. It’s going to save Ethereum… along with Loopring and Arbitrum and Optimism and Cartesi and OMG and ZKSwap and Skale and Starkware and… you get the picture.

But out of all of them, Polygon seems to be the golden child.

Layer-2s are supposed to make Ethereum scale better and massively reduce fees.

But do they?

Because so far, once they start getting popular they start running into the same scaling and fee problems that plague Ethereum.

As I wrote in my last premium article (a deep dive on Aleph Zero, read it here), “Polygon was brought to its knees by a sunflower farming game in January. Yes, really.”

And fees spiked to $0.50 per transaction.

This led to a lot of jokes about needing layer-3 projects to take the strain off of layer-2 projects, which are taking the strain off of Ethereum’s layer-1.

Actually, this is the perfect time for another Xzibit meme:

A person with his eyes closed

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Then on top of that, Polygon’s network went down for over 11 hours last week.

What’s the moral of the story here? I’ll cover anything that lets me use an Xzibit meme.

Well, that. And also scaling Ethereum is hard.

And also, even if you’re suckered in by a pump and dump you could still make 33x your money if your project gets on the hype train.

Only in crypto.

“DeFi God” Andre Cronje quits crypto, Fantom price tanks 23% in 24 hours

If you read my Fantom deep dive, you’ll know Andre Cronje is considered the father of modern DeFi.

From that piece:

Every big project needs a big name. And Fantom’s comes in the form of Andre Cronje.
Andre is Fantom’s “DeFi architect”.
And, honestly, you probably couldn’t get a better “DeFi architect” than Andre Cronje.
He created Yearn.finance… entirely on his own.
To this day it remains one of the most popular DeFi platforms on Ethereum. It currently has more than $5 billion of locked value.
And, of course, it now runs on Fantom, too. The Fantom version already has about $220 million of locked value.
If you read this Coin Desk profile on Andre Cronje, you’ll see he’s definitely an interesting guy.
From that profile:
“On July 17 [2020], Cronje revealed his plans for his own growth token: the YFI token. This is when Cronje's profile went into the stratosphere, precisely because he would not set any aside for himself. All of it would go to liquidity providers.
It brought the notion of the aforementioned fair launch to DeFi. On Yearn, anyone who put liquidity in a few pools would get an equal shot at the YFI tokens going forward, no pre-mine, no set aside, no early heads up to insiders. Bitcoin, it could be said, did the same thing, only it rewarded hash power rather than deposits, but it's still just a matter of putting resources in the place a particular project most wanted contributions.
‘Dozens of projects were inspired by the Yearn launch to launch in that same way. The success of YFI greatly lowered the barriers to builders getting their work out there,’ Scott Lewis [from DeFi Pulse] said.”

In the team section, I concluded that aside from the mountains of VC money Fantom has, Andre Cronje is the main draw (in terms of its team).

At least he was.

Then on the 6th of March Andre’s partner, Anton Neil, announced they were quitting crypto and “terminating” the 25 apps and services they were still working on.

Fantom’s price fell 23% in less than 24 hours. And its DeFi projects lost a corresponding 22% in locked value (roughly $2 billion).

Over the next few days it fell as much as 40%, before rallying and settling (for now) at a loss of around 27%.

Of course, there are many developers working on Fantom. Andre Cronje was far from the only one. But his star power was a big draw. And his abrupt exit shocked the project.

This turn of events is really bigger than Fantom. It brings a theoretical question on a lot of people’s minds into reality. What happens if a key project leader/founder/draw quits, or even dies?

For example, what would happen to Ethereum if Vitalik quit? What would happen to Cardano if Charles quit? What would happen to Algorand if Silvio quit? What would happen to Radix if Dan quit? What would happen to Bitcoin if Satoshi was unmasked?

So even if you’re not an investor or user of Fantom. This is an important story to watch.

Avalanche fees skyrocket to $14 because of a sunflower crab game

If it’s not sunflowers, it’s… crabs.

Users reported Avalanche fees hitting as much as $14 this month because of a crab game.

If you’re not familiar with Avalanche, it’s one of the most popular layer-1s, with about $11 billion locked value in its DeFi projects. It’s currently the 4th most popular DeFi platform, behind Ethereum, Terra and Binance Smart Chain.

But, like pretty much every current “Eth killer”, once it gets popular, it starts to fall down.

To go back to what I said in my Aleph Zero deep dive:

Fees have become a hot topic in crypto lately. Ethereum’s fees are through the roof and will apparently never be low again.
Many Ethereum competitors that start out with low fees see a fee price explosion once their chain gets popular. We’ve seen it with Fantom (fees hit $4), Avalanche (fees hit $14) and pretty much every “Eth killer” except Solana (which has its own problems with network outages).
And we’ve even seen it with Ethereum sidechain scaling solutions like polygon (MATIC), which was brought to its knees by a sunflower farming game in January. Yes, really.
I wouldn’t be surprised if we soon start seeing scaling solution projects launching for Ethereum’s current scaling solutions. And on and on it will go forever.

Time for my favourite meme again:

A person with his eyes closed

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Algorand’s abysmal tokenomics are starting to bite

If you’ve read my Algorand deep dive… wow this issue is really turning into an “if you’ve read my ____ deep dive fest, isn’t it?

But anyway. If you did, you’ll know I thought it was a super strong project with woeful tokenomics.

As I said at the time:

Algorand is moving to decentralise its governance.
Instead of the Algorand Foundation making all of the decisions, the Algorand Foundation will submit proposals and users will then vote on whether they’re enacted or not. And eventually, the community will be able to submit proposals too.
This is similar to what Tezos already does, and it’s proven to work well. It’s basically democracy in action. It’s what all cryptos should do. And I applaud Algorand for doing it.
However, the way Algorand has chosen to implement it – surprise, surprise – isn’t great for token holders.
As I said, currently you get around 7% in Algo rewards, merely for holding Algorand. These are called participation rewards.
Under the new governance system, these participation rewards will be phased out, and you’ll only get rewards if you lock up your Algo for three months and regularly vote on protocol updates.
From Algorand’s governance FAQ:
“Is Community Governance rewards replacing Participation Rewards?
The Governance program will start in Q4 and will distribute rewards to Governors in addition to participation rewards. Participants to the Governance program will therefore see their total rewards grow significantly above the then fixed level of participation rewards. In 2022, participation rewards will be phased out, to be completely replaced by increasing Governance Rewards.
What are the requirements to be eligible for Governance Rewards?
Governors MUST maintain their committed Algo balance throughout each full 3-month period. In other words, Governors cannot move the amount of Algo committed in the designated wallet for the entire period. In addition, they must participate in all the votes during that period.
Are the rewards you receive at the end of each governance quarter based on the Algos you commit at the start of the quarter or is it subject to change if you add more to your commitment throughout the quarter?
Your rewards will be based on what you commit at the beginning of each Governance period. What you commit at the beginning is the measure of your commitment to Governance.”
A lot of people have cheered this change because they’ll be able to get double rewards – participation and governance – until participation rewards are phased out.
But long-term, this really puts me off.
I wouldn’t want to have to lock up my funds for three months and regularly vote in order to get the same payout I was previously getting with no effort.
And let’s not forget, those rewards will end in 2030, so unless they sort some kind of on-going rewards, like I mentioned a minute ago, why would anyone bother to participate?
I don’t know why they didn’t just implement something more like Tezos where you can vote on proposals if you choose to, but you don’t have to. And it doesn’t affect your rewards whether you choose to vote or not.
So basically, Algorand’s tokenomics went from very bad to slightly better to even worse.
I get the impression that Algorand has many amazing tech people working on it and not many great economists or psychologists.
It’s a real shame, because it’s otherwise one of the very best projects out there.
Hopefully, once this new governance model gets going, the community will use it to improve the governance model itself.
I guess we’ll have to wait and see.

Well those double rewards are now coming to an end. And the only way to keep getting paid to hold Algorand is to vote on proposals and lock up your Algo for three months at a time.

So people who hold their Algorand on exchanges got a nasty shock this month when their rewards dropped from 4% to 0.45% overnight.

I’ve seen quite a few discussions about how this might affect Algorand’s popularity and price going forward. But only time will tell.

Cosmos learns the pitfalls of on-chain governance

And speaking of on-chain governance…

Cosmos has been getting into hot water this month, thanks to a mega whale controlling its on-chain governance.

From CoinDesk:

For perhaps the first time, a blockchain community has formally voted to confiscate a user’s funds.
Proposal 16, a governance proposal on the Cosmos-based Juno blockchain, has passed via the chain’s token-voting governance system. The proposal signals community approval to cut the balance of JUNO tokens held by a “whale,” or large holder, accused of manipulating the Juno launch airdrop enacted in October. The plan is extremely notable because it appears to mark the first major instance of on-chain governance being used to change a user’s token balance.

Why does this matter?

Well, it shows the limits and pitfalls of on-chain governance and proof of stake consensus.

You end up with a whale problem, where rich people buy more tokens and get more voting power and vote for things that may be bad for the project/community overall but are good for the whale’s bottom line.

Or as it’s called in the non-crypto world, an oligarch problem.

What’s the solution? Currently there isn’t one. Although, what’s happening with Cosmos/Juno is definitely an interesting development.

With proof of stake and on-chain governance, I’m reminded of that quip about democracy: “democracy is the worst form of government, except for all the others.”

Terra is winning crypto right now

The only major layer-1 that’s been doing well this month (other than Ethereum, more on that in a second) is Terra.

In fact, there is so much crazy stuff happening with Terra and its founder, Do Kwon, right now that I’m going to dedicate next week’s premium issue to it.

It involves $20 million public bets about Terra’s price next year, Do Kwon suing the SEC and Terra overtaking Ethereum in terms of staked value.

It’s been a wild ride, and it looks set to continue.

Stop press: “the merge” – Ethereum’s move to proof of stake – is nearly here!

The only major cryptos I can think of that still use proof of work are Bitcoin and Ethereum. And the massive energy demands of proof of work is crypto-haters favourite stick to beat crypto with.

Bitcoin will use proof of work forever. But, for as long as I can remember, Ethereum has been switching from proof of work (which uses a ton of energy) to proof of stake (which uses very little energy).

It’s been on the cards since I started researching crypto way back in 2016. Six years later, and Ethereum is finally ready to make the move.

From The Defiant (cool name for a DeFi newsletter):

On March 15, The Ethereum Foundation announced that The Merge was successfully completed on Kiln — the final merge testnet before the upgrade will be deployed on Ethereum’s public testnets.

Aside from the energy usage argument, the shift to proof of stake is being dubbed Ethereum’s “triple halving” (in reference to Bitcoin’s halving events that massively reduce the rate at which its supply expands).

And there is a lot of talk about the impact this could have on Ethereum’s price and popularity going forward.

Again, from The Defiant:

On March 14, “Litocoen” of Hop Protocol tweeted that chain merge will usher a 90% reduction in daily ETH emissions to 12,000 Ether from 1,280 Ether. The researcher described The Merge as “the equivalent of three halvenings at once,” adding that annual inflation will be slashed to 0.43% from 4.3%. He emphasized that the predicted 90% drop in issuance does not factor in the fee burn introduced with EIP-1559, which has destroyed $5B in Ether since launch.
“Taking ETH burn into account[,] Ethereum will be deflationary,” he added.

And what about Ethereum’s energy consumption?

Litocoen estimated the transition to Proof-of-Stake will cut Ethereum’s energy consumption by 99.95%. “It will be tiny even compared to traditional payment networks,” he said, forecasting that Ethereum will consume only 0.4% of the energy guzzled by Visa’s payments network.

So a “triple halving” and a 99.95% reduction in energy consumption… this could prove a very big year for Ethereum.

So long as the merge actually goes ahead as planned. The general consensus seems to be that it will happen in June/July. So not long to wait now.

Lawsuit reveals JPMorgan “owns critical Ethereum infrastructure”. This is actually pretty bad…

MetaMask is the wallet the most people use with Ethereum.

It used to be open source. But back in August 2020, it changed its license to proprietary.

That’s not really the done thing in crypto. Open source is king. So people were understandably annoyed. But after a few weeks people forgot about it.

Fast forward to today and news breaks that JPMorgan owns a big piece of ConsenSys, the company behind MetaMask.

JPMorgan isn’t exactly lauded in crypto circles. If you remember, JPMorgan’s boss, Jamie Dimon famously called Bitcoin “a fraud”, saying “It’s just not a real thing, eventually it will be closed.” Adding that he’d fire any JPMorgan employee found trading it.

But that was back then. Today he knows he can make money from it so he’s come around.

Anyway. It’s not good that, as protos puts it, JPMorgan owns critical Ethereum infrastructure.

From that article:

A group of 35 shareholders of Ethereum giant ConsenSys AG (CAG) have filed for a special audit of a 2020 deal that saw JPMorgan Chase acquire an “influential” stake in two of its flagship products. …
Both crypto wallet MetaMask and node network Infura persist as arguably the Ethereum ecosystem’s most critical infrastructure.
Turns out, Wall Street fat cats JPMorgan directly profits from — and even controls — that infrastructure.
Not exactly what Satoshi Nakamoto envisioned when he embedded “Chancellor on brink of second bailout for banks” in Bitcoin’s genesis block.

I’ve also seen people point out that MetaMask changed its license right around the time JPMorgan made that deal with ConsanSys.

From the press release mentioned in the above article (emphasis mine):

On August 14, 2020, fundamental intellectual property and subsidiaries were illegally transferred from CAG into a new entity, ConsenSys Software Incorporated (CSI), in exchange for 10% ownership of CSI and an offset of a $39 million loan by founder Joseph Lubin.
Internally code named "Project North Star", the transaction resulted in legacy financial institutions such as JPMorgan Chase acquiring an influential stake in MetaMask and Infura, two of the most widely used infrastructure tools in Ethereum. One year later, this intellectual property was used to raise funding for CSI at a valuation of $3 Billion, with rumors of a $7 Billion valuation for the current round.

Hmm, So JPMorgan acquired an “influential stake” in MetaMask on the 14th of August 2020 and MetaMask stopped being open source that same month. Yep, nothing to see here.

Now, if you’re wondering why it’s bad that JPMorgan owns a big stake of MetaMask, you can read this great critique of web3 by the guy who created Signal.

The crux of his argument is that web3 isn’t actually decentralised because it relies on centralised systems like OpenSea, Infura and MetaMask to function.

And now we know JPMorgan owns an “influential stake” of MetaMask and Infura.

One more example of why this kind of centralisation is bad. It ended up with Venezuela being blocked from MetaMask (so basically blocked from Ethereum).

From CoinDesk:

Crypto observers cried foul Thursday when reports surfaced on Reddit that MetaMask, the gateway for many to the world of Ethereum, was made inaccessible to users in Venezuela.
The truth of the matter, however, was that Infura, the infrastructure service also owned by Ethereum conglomerate ConsenSys, had imposed new geoblocks Thursday but applied them too broadly, according to a series of tweets.
The mistake had been rectified, Infura said, but not before critics levied claims that the episode revealed a point of failure in what is widely billed as the “uncensorable” internet.

Regulation news

I’ve written so much about regulation over the last few months that you must be getting sick of it. I know I am. However, it’s become a big piece of the crypto puzzle. So I can’t ignore it.

Here’s a rundown of the major events from the UK, US, Canada and… South Korea.

Crypto tax in the UK just became a nightmare, thanks to HMRC’s new rule interpretations

HMRC dropped a bomb this month and completely changed how crypto taxes work.

In theory, it only issued new guidance on how to interpret its already existing rules. But in reality, it changed the game, in a very bad way.

Basically, the new interpretation of the rules says that if you use DeFi or CeDeFi, like Crypto.com, Celsius, BlockFi, etc, then as soon as you deposit your crypto, that counts as a disposal.

So, say you move some Ethereum to BlockFi, that counts as disposal of an asset and you have to pay capital gains tax. Then you have to pay income tax on any interest you receive while it’s in there (nothing’s changed there), then when you move your Ethereum out of your BlockFi wallet you have to pay capital gains tax again on any price changes.

CryptoUK wrote a statement about the change, calling out HMRC. You can read it in the tweet below:

But here’s its key argument:

Commenting on HMRC’s announcement, Ian Taylor, Executive Director of CryptoUK, the trusted voice of the UK crypto industry, said: “HMRC treats crypto assets as property for tax purposes. However, this is inconsistent with the approach currently being adopted by Government and other regulatory bodies in the UK, including the Treasury and the FCA, who regard crypto assets as financial instruments and regulate them as in line with other financial services and products.
“This inconsistent approach by HMRC creates friction for crypto investors, adds undue reporting requirements for the consumer, and creates tax compliance confusion. Stock lending is not taxed in the same way, for example.
“This treatment of crypto lending and staking creates an unnecessary burden for any crypto investor who will now be required to include details of any lent assets (in certain cases inaccurately determined to be ‘disposed’) on their tax returns and will have to carry out additional reporting which could require individuals to report hundreds or even thousands of transactions. This is out of step with the Government’s stated aim for the UK to be open and attractive as a destination for investment and innovation post Brexit.
“We need a clear and holistic regulatory framework for crypto assets in the UK and a consistent whole of Government approach, with joined up thinking across all agencies and departments when it comes to developing the UK approach to crypto asset regulation and taxation.

In the wake of all this, Koinly reached out to a load of crypto tax experts and wrote a free guide on how to stay on the right side of the new rules. You can read it here.

But even Koinly admits that no one really knows how to deal with the new rules or what the consequences will be.

FCA bans crypto ATMs

As the FCA continues in its quest to shut down any crypto business it can get its hands on, this month its banning crypto ATMs.

From Fortune:

Any crypto ATMs operating in the UK must shut down, the country’s Financial Conduct Authority said Friday.
None of the crypto exchanges registered with the FCA have been approved to offer crypto ATM services, the financial regulator said, “meaning that any of them operating in the UK are doing so illegally, and consumers should not be using them.”
According to data from Coin ATM Radar, there are about 80 crypto ATMs in the UK.

To be fair, you’d have to be a fool to buy crypto through an ATM anyway. The markups and spreads are ridiculous. But that’s not really the point. The point is this is yet another crypto business sector that the UK is banning.

FCA is creating a crypto assets division and recruiting for its sheriff

Here’s the job listing on LinkedIn.

I think this is good news?

It means the FCA certainly isn’t planning to ban everything crypto. And it hopefully means it will actually learn about how the crypto industry works and have more capacity for approvals etc.

Although, looking at the job description, it doesn’t list “Knowledge of cryptoasset business models and blockchain” as essential, but only desirable.

My guess is it will be headed up by one of the old boys’ club from traditional finance, who won’t know anything about the industry. But I really hope I’m proved wrong.

Canada bans everything (for a few days)

There’s been an interesting chain of events in Canada over the last few months.

Canada’s Prime Minister, Justin Trudeau, went from poster child for liberal democracy to apparent tyrant in the space of a few days.

I’m sure you know the story:

  • Lots of people protested against vaccine mandates and lockdowns in Canada.
  • Truckers came to Ottawa and blocked the streets. Canada’s main trade route with America was blocked.
  • People donated tens of millions of dollars to the protestors.
  • Canada’s government declared a state of emergency and gave itself draconian powers to prohibit public assembly, prohibit funding of protestors and imprison and fine protestors, among other things.
  • So anyone protesting could have their bank account frozen and money taken.
  • Canada forced the crowd funding platforms people were using to donate to protestors to block payments and forced banks to freeze protestors’ bank accounts.
  • So people turned to crypto.
  • Canada forced crypto exchanged to block transactions to protestors. But it obviously couldn’t do anything about direct crypto donations.

This was seen as a win for crypto and a loss for democracy. I don’t really know what to make of it all. But before Putin went mental it was the biggest story doing the rounds.

And it did give us a good meme:

A collage of people

Description automatically generated with low confidence

Joe Biden signs long-awaited Executive Order on crypto

It’s been a long time coming, but earlier this month, Joe Biden signed his first Executive Order on Crypto.

You can read it here.

There was a lot of fear that he might usher in a crypto crackdown or bring in crazy new rules. But it turns out it was basically okay.

Here was Time’s take:

The White House took a big step toward regulating cryptocurrency on Wednesday — a move experts described as “extremely positive,” “long overdue,” and an “acknowledgment that cryptocurrency is here to stay.”
With the signing of a new executive order on cryptocurrency, President Joe Biden officially directed federal agencies to implement a strategy for policies and regulations on digital assets like crypto, according to a White House fact sheet.
“In the long-term, this is extremely positive for the crypto market and is absolutely necessary to allow it to grow further, mature and be more accessible to institutional investors,” says Tal Elyashiv, founder of SPiCE VC, a venture capital fund that focuses on blockchain and tokenization.
Experts say the order will help create a path toward the regulatory clarity needed for mass institutional adoption of Bitcoin and other digital assets. That, in turn, could mean more stability  in the notoriously volatile crypto market for long-term investors.

The best thing about it is that it didn’t single out the SEC as a lead on regulation. It looks like the US is going for a “whole of government” approach. Which is good because under Gary Gensler’s control the SEC has been notoriously harsh on crypto. Now he won’t be the only game in town.

Ripple is looking more and more likely to win its court case with the SEC

We’ve been following this case for years now.

But as more time passes, it looks like Ripple is gaining more and more ground against the SEC.

From Coin Telegraph:

A former executive from the United States Securities and Exchange Commission believes the regulator has a good chance of losing its $1.3billion lawsuit against Ripple “on the merits” of the case.
Attorney Joseph Hall has also voiced concerns over what the SEC’s endgame could be regarding the high-stakes case against Ripple, which will have ramifications for the entire industry.
Hall, a former managing executive for policy at the SEC, appeared on the Thinking Crypto podcast with host Tony Edward on Tuesday where he said:
“I’m not entirely sure what the SEC is planning on proving in the XRP litigation.”
The implications for the SEC and for the crypto industry as a whole are massive. As Hall puts it, “The SEC has a lot riding” on the case, and “their entire regulatory project could be basically shut down if they lose on the merits of the case.” He continued:
“And I continue to think there is a pretty good chance that [the SEC] will lose on the merits.”
Hall believes that Ripple has a strong defense on the basis that the SEC failed to give fair notice of its investigation. The SEC is required to notify individuals and corporations that they are being scrutinized.
“I’m very sympathetic to that argument. It’s a basic due process argument. The Ripple network was operating for years before the last-minute filing of a lawsuit against them.”

BlockFi agrees to pay a record $100 million fine after being investigated by the SEC

The SEC really doesn’t like the idea of people earning interest on their crypto.

You might remember that when Coinbase was planning to launch its “earn” product, which would pay 4% on USDC deposits, the SEC slapped it down.

But the issue for the SEC is there are already tons of companies with crypto earn products on the market. Well, I say problem. It’s more like a cash cow.

The SEC has started going after these companies and recently landed a record $100 million pay-out from one of the biggest, BlockFi.

From Reuters:

A subsidiary of crypto company BlockFi Inc has agreed to pay $100 million to the U.S. Securities and Exchange Commission (SEC) and 32 states to settle charges in connection with a retail crypto lending product the New Jersey company offered to nearly 600,000 investors, regulators said on Monday.
The charges come as U.S. regulators, worried about investor protections and systemic risks, are cracking down on the booming crypto industry. The settlement is also an example of SEC chair Gary Gensler's strategy to force crypto companies to fall in line with existing U.S. securities laws. The agency said it hopes more companies will follow suit.

You would assume this is terrible for BlockFi. But Matt Levine had an interesting take on it (as he always does).

From Matt Levine:

If a crypto startup went to the U.S. Securities and Exchange Commission and said “we want regulatory clarity about what we need to do to run crypto lending programs, so you should write some rules about it,” the SEC would say “sure, we’ll give that some thought in like 2036.” If it went to 50 different U.S. states and asked them for clarity it would get even more confused. If it went to the SEC and said “look, to speed this process along, why don’t we pay you $50 million to prioritize writing these rules,” that would be a very bad crime and it would go to prison.
But BlockFi will give the SEC $50 million, and it will give some states another $50 million, and now it has clarity about crypto lending programs. ….
I think that you can read this story as “BlockFi did something illegal and got in trouble,” or you can read it as “BlockFi has worked with the SEC to develop the first U.S. regulated crypto lending product, giving it a competitive advantage,” but I do not really think you have to choose. BlockFi ventured out into the gray area, which got it (1) a big fine and (2) clarity.
It is certainly possible that I am exaggerating here. The SEC has been saying for some time that crypto yield products like this — in which retail customers deposit their cryptocurrency with an exchange, which then lends it out to institutional borrowers and pays the retail depositors a fixed interest rate — are securities under standard interpretations of U.S. law, and I have in the past agreed that they are pretty obviously securities. BlockFi has real lawyers and apparently disagreed, but I do not think that the SEC would say that this was a gray area. Thus the $100 million fine.

South Korea elects pro-crypto president

Back in 2017, the crypto world was kind of obsessed with South Korea.

Whenever there was a big dip, it felt like South Korean investors were the ones bringing us out of it. And whenever there was a major rally, it always seemed like the South Koreans started it.

Over the years, South Korea has cracked down on crypto, banned ICOs and played a smaller and smaller role in the crypto world.

But that looks set to change. Its new president is said to be very pro crypto. He’s bringing back ICOs and making crypto gains under $40,000 tax free.

From Nikkei Asia:

South Korean President-elect Yoon Suk-yeol will take office in May with no business experience but strong ideas on one of the most contentious subjects in finance, cryptocurrencies.
Yoon, a former top prosecutor who emerged victorious last week in the closest vote for the top office in the country's history, has promised to allow initial coin offerings, or ICOs, as part of his broader cryptocurrency pledges.
A member of the conservative People Power Party, he has also vowed not to impose taxes on cryptocurrency trading gains of up to 50 million won ($40,000), treating them the same as stock winnings.
Yoon's proposals were welcomed by cryptocurrency advocates who expect obstacles to be removed and the door opened to increased opportunities in blockchain technology-based assets.
"We definitely welcome his stance as he is confident about boosting the industry," said Yoon Seong-han, secretary-general at Korea Blockchain Association, a lobby group for cryptocurrency exchanges and other market participants. "As ICOs are banned now, we have no choice but to issue coins in Singapore and other countries. Ventures and startups will be able to raise money easily from investors [if the ban is lifted]."

Looks like South Korea is back in the game!

And that’s something definitely worth celebrating.

My Aleph Zero deep dive is out now

You’ve probably seen me referencing my deep dive on Aleph zero a few times in this issue. I looked into the project last month, and as you can see in my deep dive, I’m very impressed with it so far.

That’s not to say it doesn’t have some big risks and caveats. But I definitely think it’s worth looking into.

If you’re a premium subscriber, you can go here to read my deep dive.

And if you’re not, you can go here to subscribe to coin confidential premium for £10 a month.

When you join, you’ll also get instant access to my full archive of crypto deep dives, which includes Solana, Polkadot, Algorand, Radix, Mina Protocol, IOTA and Fantom.

And going forward, you’ll get a new premium issue every two weeks. Plus, you’ll be helping me keep this site going and writing free issues like this one.

As you probably know, I’m a one-man-band. So every single subscriber (free and premium) means a lot to me. You mean a lot to me.

Thanks for reading.

Harry

PS It’s official, as everyone predicted last month, Netflix is making the series.

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

Disclaimer: This content does not constitute financial advice, tax advice or legal advice. Your money and how you choose to spend it is your responsibility. Nothing that appears here should be construed as investment advice or recommendations to buy or sell any securities, cryptos or investments. coin confidential does not offer investment advice. We merely provide information. Crypto investing is highly risky. You should not base any investment decision solely on information we publish. We believe all information we publish to be accurate, but we cannot guarantee it. Always do your own research before making any decisions about your money. See the full disclaimer for more.

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Harry Hamburg

This is all, just like... my opinion, man.