Copper’s Weekly Dispatch – 10 February 2022

Analysing what went right, and what went wrong, in this week’s Crypto Weekly Dispatch

Copper

After weeks in the grip of the bears, overall market sentiment has lifted considerably as bitcoin jumped 21% to hit a multi-week high above $45k this week.

Other crypto market darlings that contributed to the global crypto market cap reclaiming $2T include XRP, AVAX, SHIB and LTC, with gains of 40%, 37%, 54% and 27% respectively in the past seven days.

In another sign of improving investor sentiment, CoinShares reported on Monday that crypto funds saw inflows of $85m last week during the seven days through Friday. This is 4.5 times more than the week prior and marks the third straight week of net inflows.

With institutional participation in crypto high on the news agenda, we were delighted to support the AYU Crypto Brunch in London today. A big thank you to the hedge fund, family office and private equity guests who joined us to discuss institutional investment crypto trends over coffee and croissants. I hope it was an educational sharing session for all.

Some of you may be interested to learn that in March, we’ll be teaming up with AYU again to host a week-long series of events for the alternative investment community in Zurich, Geneva and Verbier. Check out the AYU events page for dates and details on how to join.

Meanwhile this Saturday, some of the Copper team can be found on the track in Mexico City for the third race of the ABB FIA Formula E world championship. If you’re in the city and would like to meet with our Head of Sales, Glenn Barber, and his US team, write to us.

Best Regards,

Iva Lila

Beneath the headlines

Jump Trading restored $320m in crypto stolen in the Wormhole hack. Does this incredible display of support from one the largest, most-well capitalised trading firms in the world shake confidence in Solana or promote skepticism?

Last week brought us one of the biggest DeFi exploits in history which according to Rekt, was the second largest on record. Wormhole, a DeFi platform that acts as a bridge between Ethereum and Solana, suffered a major exploit to its bridge, with an attacker fraudulently minting 120k ETH worth over $320m. But what took the world by surprise is that in seemingly a blink of an eye, Jump Trading (which owns Certus One – the developer behind Wormhole) stepped in to replenish the stolen funds.

The incredible response from Jump means that Wormhole is back to normal operations and no user funds were lost. Wormhole itself has also been showered with praise for coordinating a blazing-fast response to the attack within an hour of its occurrence, as demonstrated by a detailed incident report published by the protocol on Friday.

That said, the event has also raised questions about how things could have played out for the Solana DeFi ecosystem if a benevolent, deep-pocketed third party hadn’t swooped in to save the day? As Arca’s Jeff Dorman noted, the bailout speaks volumes about Solana being ‘too big to fail.’

As hacks go, this one went down pretty smooth. Wormhole has now confirmed that the smart contract vulnerability has been patched, and obviously investors are lucky that Jump was able to replace the missing ETH and prevent widespread damage in the Solana DeFi ecosystem. It’s also key to keep in mind that this incident gives the community an opportunity to learn when stakes are smaller. Sure, nobody wants to see hacks such as this happen, but the silver lining is that it took place while the Wormhole protocol is relatively young and there isn’t billions worth of value in the bridge.

Perhaps the most important lesson from this experience (that i think we can all agree on) is that if you’re going to raise capital, raise only from Jump Capital. 😉

The big question mark now is the whereabouts of the hacked funds. Let’s hope investigators are able to identify the hacker and retrieve the stolen funds. Just please, oh please, don’t let the troublemaker be a terrible, amateur TikTok rapper…. That brings us onto our next story.

US arrests two and seizes $3.6bn in BTC from Bitfinex hack. Does this event debunk the ‘crypto is a money laundering machine’ narrative?

By now, most of you will have heard about the U.S. Justice Department’s largest-ever financial seizure of $3.6bn in BTC tied to the 2016 Bitfinex hack. The story is still unfolding but so far seems to have something for everyone: schemes, crypto, theft, rap and money laundering.

By following the blockchain path, federal agents were able to link the stolen cryptoassets back to the crypto wallets of Ilya Lichtenstein and Heather Morgan. Both were arrested Tuesday morning on charges of conspiracy to commit money laundering. By Tuesday evening, the two suspects had already been granted bail following a court appearance in Manhattan.

What whipped social media into a frenzy is that one of the suspects, Heather, moonlights as a Forbes writer and a rapper under the alias, Razzlekhan. Twitter users also unearthed a Forbes article with insights from Heather along with executives of BitFlyer and BitGo, entitled: ‘Experts share tips to protect your business from cybercriminals.’ A whole new level of irony, I know.

Memes and jokes aside, this story has led to important discussions about the ability to follow money through the blockchain. Previously, we’ve seen on several occasions exchanges freeze funds sent by hackers, while time and time again, the likes of Tether have blacklisted addresses they believe are involved in crime or money laundering.

The above has led to claims that the transparency of the blockchain pours cold water on crypto’s status as ‘protection against sovereign overreach’.  I think it’d be correct to say that privacy coins aside, crypto is only partially anonymous. There isn’t anything to inherently link a wallet to a person, but when investigators utilise the proper analytics and forensics tools – like those available from Chainalysis – it’s game over. Crypto suddenly becomes extremely transparent.

In order to make it extremely difficult for criminals to use digital assets to perpetuate financial crimes, many are calling on regulators to prohibit exchanges from permitting use of mixers. Meanwhile for others, bitcoin’s greatest gift its is privacy-preserving feature, and there’s a ton of effort being applied into improving the privacy of the asset further. How much privacy is enough is the million dollar question?

I think as paying in digital assets for big ticket items (real estate, diamonds etc) becomes more common, it’s likely that we’ll see further attempts of crypto being used for money laundering – even as transaction monitoring systems become more effective at identifying illicit activities. But the opaque art and fiat systems seem far more effective than digital assets as money laundering tools

Circling back to the recovered crypto, it’s still unclear what’s to happen with the assets. Whatever does take place next, this story is major win for Bitfinex, the DOJ, the victims and the LEO token that was issued in 2016 to refinance Bitfinex after the hacking incident. In the past seven days, the token has surged more than 50% and is trading at an ATH. What remains to be seen now is whether this story will also be a big win for clearing crypto’s reputation as a money laundering vehicle.

KPMG in Canada adds BTC and ETH to its corporate treasury. Will this move ignite corporate adoption of Ethereum as a treasury reserve asset?

It’s been a year and five months since business intelligence firm MicroStrategy became the poster child for corporate support of bitcoin after putting the crypto into its treasury reserve. The first publicly listed company to do so. Since then, Square, Tesla, Time magazine, WeWork and a slew of other organisations have followed in its footsteps.

On Monday, a new bitcoin-balance-sheet club member revealed itself. The Canadian arm of the big four accounting giant, KPMG, announced it had added an undisclosed amount of BTC and ETH to its balance sheet. According to its official statement, the firm said it’ll also be adding carbon offsets to maintain a net-zero carbon transaction to deliver on their ESG commitments.

This development is pretty nuts to me as auditors are among the most conservative organisations out there and very cautious when it comes down to their reserves. The fact that a big four firm has now allocated a part of its treasury to ETH and BTC demonstrates that this investment trend isn’t a flash in the pan, but a major turning point.

As expected, KPMG Canada’s forward-thinking investment decision has generated much excitement from the crypto community, but it’s also sparked a discussion on whether ETH makes a wise treasury reserve asset.

ETH on a balance sheet carries more risk than Bitcoin as the Ethereum ecosystem is undeniably more complex. There’s also enhanced competition from other smart contract platforms like Avalanche, Solana and Cardano.

Despite the risks, ETH remains a solid bet and it’s exciting that KPMG has invested in the world’s most popular smart contract platform. Now let’s see if this sets the stage for further corporate adoption of Ethereum, just like MicroStrategy achieved for BTC.

Roundup of other key developments

INSTITUTIONAL

Grayscale debuts ETF to track digital asset-based equities index. More

Canadian Bitcoin ETF sees its third-biggest daily inflow ever. More

SEC seeks to bolster disclosure rules for private equity and hedge funds. More

BlackRock reportedly plans to offer crypto trading services. More

LEGAL + REGULATORY + GOV + CBDCs

Russian government and central bank agree to treat Bitcoin as currency. More

HMRC confuses crypto investors in DeFi and staking earnings pursuit. More

Financial disclosures show Ted Cruz made a January 25 bitcoin purchase. More

Kazakhstan president calls for tax increase on crypto mining. More

US Treasury targets NFTs for potential high-value art money laundering. More

MIT, Boston Fed go public with ‘Project Hamilton’ CBDC research. More

Myanmar Junta wants own digital currency after gov in exile pushes Tether. More

COMPANY + CeFi

Alchemy raises at $10.2bn valuation in round led by Silver Lake. More

Binance invests $200m in Forbes to boost consumer knowledge on Bitcoin. More

FTX is acquiring Japanese crypto exchange Liquid. More

Dune Analytics raises near-$70m in Series B funding round. More

Tezos scores $27m deal with Man United, Baby Doge backs Hoffenheim. More

CZ warns of a massive phishing scam targeting Binance users. More

Polygon stablecoin QiDAO exploited for $13m on Superfluid vested contract. More

FTX US to give away bitcoin as part of Super Bowl ad. More

DeFi + WEB3 + NFTs + METAVERSE

EU mulls metaverse regulation as businesses jump into virtual reality. More

Aave debuts decentralised social media platform, Lens. More

GameStop to launch NFT marketplace with Ethereum Layer 2 Immutable X. More

Saudi Arabia to invest billions in metaverse, blockchain technology. More

AssangeDAO concludes fundraise after securing 17,422 ETH ($54m). More

What to watch out for over the coming days

FRIDAY 11 FEBRUARY

Klaytn AMA. More

SATURDAY 12 FEBRUARY

Copper team attend race 3 of the Formula E World Championship in Mexico City. More

SUNDAY 13 FEBRUARY

Mystique Ethereum Classic hard fork. More

MONDAY 14 FEBRUARY

RGP snapshot takes place to record the addresses holding or staking RGP and qualify them for the airdrop on Oasis. More

TUESDAY 15 FEBRUARY

The Senate Banking Committee: Examining the President’s Working Group on Financial Markets Report on Stablecoins. More

Swissborg annual meeting. More

WEDNESDAY 16 FEBRUARY

Copper’s Head of Sales APAC, Takatoshi Shibayama, joins PWC’s Henri Arslanian, ZEBEDEE’s Simon Cowell, and Bitstamp’s Andrew Leelarthaepin for a live webinar looking at new market opportunities driven by growing institutional participation in crypto markets. More

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