Analysing what went right, and what went wrong, in this week’s Crypto Weekly Dispatch
One of the things I find most fascinating about crypto (apart from the dizzying pace of change) is that it represents different things to different people. Outside our community, most view cryptocurrencies as a speculative asset class or a vaguely interesting form of new technology. For others, it’s is a solution looking for a problem that doesn’t exist.
The Russia-Ukraine war, which sadly continues to rage on, is demonstrating several concrete real-world use cases for crypto that even the industry’s staunchest critics are acknowledging.
Ukrainian President, Volodymyr Zelenskyy, signed into law a bill on Wednesday that effectively legalises the digital asset sector in the country. The decision comes as cryptocurrency is playing a pivotal role in financing the country’s humanitarian aid and military efforts. Cointelegraph reported last week that over $108m worth of crypto had been donated to Ukrainian government addresses. This figure is likely significantly higher now.
Meanwhile in Russia, digital assets have become something of a lifeline for citizens amid a failing financial system, with evidence suggesting that ordinary people are utilising crypto to preserve their purchasing power and asset base. The ruble has already reached historical lows and continues its decline, while Russia’s GDP has lost $30bn, or 9% in 2022.
While initially there were concerns that sanctioned Russian oligarchs would turn to our sector to skirt restrictions, I think it’s now generally understood that compliance controls and the relatively low liquidity in crypto markets make this no easy feat. Moreover, blockchain’s transparency probably would expose any ‘whale’ activity. This debate is now likely to pick up steam again following yesterday’s Senate Banking Committee hearing: Understanding the Role of Digital Assets in Illicit Finance, and the announcement that Russian sanctioned bank, Sberbank, has been granted permission by the country’s central bank to issue digital assets.
Whether for good or ill, crypto’s use cases in the Ukraine war are enormous and going forward, will be extremely important in shaping crypto regulations all around the world.
President Biden signed the long-awaited US Executive Order on cryptoassets. Has a turning point been reached in the recognition and acceptance of crypto in the US?
Last Wednesday is being looked on as a watershed moment for crypto as President Biden signed an Executive Order (EO) on Ensuring Responsible Innovation in Digital Assets – marking the first time ever the White House has formally weighed in on digital assets.
The order is, in essence, a call for the Treasury Department and other regulatory agencies to create a framework for the regulation of cryptoassets in the US within 180 to 210 days. It’s also a symbol of a bigger point; the crypto space has matured sufficiently to be welcomed into the mainstream.
The key areas that Biden’s executive order focuses on are the following: 1) consumer and investor protection, 2) maintaining financial stability, 3) mitigating illicit finance, 4) ensuring US leadership in the global financial system, 5) promoting financial inclusion, 6) fostering responsible innovation, and 7) the exploration of a US CBDC.
While what this all means in practice will be the devil in the details, the EO lays the groundwork for future reform. This past week, it has, by and large, drawn a positive reaction from the crypto community. A solid proxy for reading the market’s sentiment on the EO is tracking the price of bitcoin, which rose approximately 10% following its singing.
Interestingly, the response from TradFi has also been largely welcoming. In an official statement, the Bank Policy Institute (BPI) said “the directive will lead to greater clarity for banks and other financial institutions as they consider how to continue to innovate and meet customer demand for digital assets-related products and services while appropriately managing the relevant risks.” However, it was notably more skeptical on the subject of a US digital currency, pointing to previous BPI research which concluded that CBDCs would “pose considerable and unavoidable costs to the financial system and economy while producing few, if any, tangible benefits.”
The Independent Community Bankers of America (ICBA), also issued a statement calling for policymakers to ensure the crypto regime is “comparable to the banking system”, and for the regulation of stablecoins to be brought “within the regulatory perimeter”.
A crossover in talent between TradFi and the crypto industry (which is taking place in both directions) is unquestionably accelerating education and the adoption of digital assets. Now, with this EO, it’s likely that while waiting for clear rules – major banks will be giving more serious thought to building out their crypto capabilities. But as the following story demonstrates, some large financial institutions are already several steps ahead of the curve…
State Street partners with Copper in push for crypto custody. Is this the year traditional banks lead the charge in furthering crypto adoption?
Crypto and legacy banking may feel like the slowest convergence in a rapid technological revolution, but behind the scenes, it’s been quietly picking up pace. As Biden was signing the milestone EO last week, our team at Copper made public a landmark collaboration with State Street – one of the world’s largest custodian banks with $43T in assets under custody.
As part of the agreement, State Street Digital – the digital arm of the bank – will leverage Copper’s infrastructure to provide a secure environment for its clients to store and settle cryptoassets.
Our licensing agreement with State Street comes at a time when major US banks and some of the largest TradFi whales are assessing whether it makes sense to partner, buy or build the necessary technology components to transact, custody, settle and potentially issue cryptoassets. With numerous surveys reporting that custody remains a primary concern of institutional investors looking to enter the space, our collaboration with the second-oldest bank in the US looks set to go a long way in bolstering trust and bringing new blood to the crypto economy.
Most US banks began seriously looking into digital asset custody solutions back in July 2020, when the OCC granted federally chartered banks permission to provide custody services for cryptoassets. State Street launched its digital division approximately one year later in June 2021, shortly after BNY Mellon announced its investment in crypto custodian, Fireblocks. Whereas, US Bank – the fifth-biggest retail bank in the nation – debuted its institutional crypto services not too long afterwards, in October 2021.
For the few financial institutions who weren’t convinced about the force of digital asses back then, last week’s EO should certainly alleviate any doubts about whether crypto will be a major disruption. As a result, 2022 may just be the year that crypto and banking become inextricably intertwined. By providing much-needed stability through partnerships or direct investment into crypto projects/protocols, it’s easy to envision how the banking industry can propel the the crypto market to new highs. At Copper, we’re enormously proud and honoured to be a small part of this amazing story.
The European Parliament votes against a de-facto ban on PoW consensus method in MiCA draft. But why was the clause added just a few days prior to the vote?
The crypto community heaved a huge sigh of relief on Monday as the European Parliament voted to scrap a proposed rule from the Markets in Crypto Assets (MiCA) draft that sought to ban PoW mining such as bitcoin (and currently still ETH) across the European Union.
MiCA is an EU regulatory framework that seeks to tighten regulation around cryptoassets by establishing a licensing regime and a uniform set of rules for member states. It was unveiled in its draft form by the European Commission in 2020 as a part of the bloc’s digital finance strategy.
A last-minute adjustment to the framework containing wording, which would effectively ban PoW cryptoassets, was sneaked into 200+ page report over the weekend. On Monday, the European Parliament voted against the de-facto proof-of-work ban: 32 against, 24 in favour.
According to Chainalysis, Europe has the world’s largest crypto economy, meaning that had this vote gone the other way, it could potentially have robbed the EU of a high-growth sector that it has a huge opportunity to lead.
My two cents: 1) What’s deeply concerning about this story is why the wording found its way into the draft just a few days before the vote. It’s hardly reasonable that those voting would’ve had the time to read and absorb the updated version in a short space of time. 2) This event is yet another important reminder of industry participants’ responsibility to mobilise and work with policymakers to help them understand why blockchain will drive the next wave of innovation. Across the pond in DC, the fruits of the labour of crypto advocacy groups and various blockchain companies are beginning to be seen. It’s time we step up our efforts here in Europe.
FTX launches new unit focused on institutional investors. More
US hedge fund Fir Tree reportedly attempts to short tether. More
LEGAL + REGULATORY + GOV + CBDCs
FTX, Binance gain licenses in Middle East. More
Binance confirms shutdown in Ontario, Canada. More
Kazakhstan shuts down 106 crypto mining farms. More
UK’s FCA opens search for head of crypto division. More
Anglo-Dutch alliance to monitor Russian crypto transactions for Ukraine. More
Utrust receives operating license from Portugal central bank. More
FCA issues termination order for Bitcoin ATMs. More
Bank of Israel issues draft guidelines on cryptocurrency AML/CFT. More
COMPANY + CeFi
Binance to acquire Brazilian securities brokerage Sim;paul Investimentos. More
Ukraine partners with FTX, Everstake to launch new crypto donation website. More
ConsenSys raises $450m in Series D funding, doubles valuation in four months. More
Fed rate hikes double crypto firm Circle’s valuation. More
Paxos wins regulatory approval from Monetary Authority of Singapore. More
DeFi + WEB3 + NFTs + METAVERSE
Banking giant HSBC partners with Metaverse firm The Sandbox. More
BAYC’s Yuga Labs acquires CryptoPunks IP from Larva Labs. More
Aave set to launch third version of its DeFi protocol across six networks. More
GameStop to launch NFT platform by end of Q2. More
APE token tied to BAYC NFTs sinks 80% in opening hours. More
MetaMask token confirmed, DAO in the plans. More
Agave and Hundred Finance DeFi protocols exploited for $11m. More
FRIDAY 18 MARCH
Internet Computer (ICP) Kraken listing. More
SATURDAY 19 MARCH
Nimus Fluxnode halving. More
SUNDAY 20 MARCH
StormX governance snapshot. More
TUESDAY 22 MARCH
Opening day of Digital Assets Week California. More
Qtum OKCoin Japan listing. More
WEDNESDAY 23 MARCH
Day one of the Hedgweek Hedge Fund US Leadership and Innovation summit, that the Copper team is attending. More