Copper’s Weekly Dispatch – 14 January 2022

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

Copper

The crypto market continues to feel the touch of winter, with bitcoin dropping below $40k on Monday for the first time since September last year. However, in just a few days, the world’s largest cryptocurrency has added more than $3k in value and is now sitting slightly above $43.1k.

A bright spot in the markets this past week has been L1 protocol, NEAR, that has seen its token price climb by more than 34% in the past seven days to reach a new all-time high yesterday at $20.36. The price hike followed an announcement on Thursday that the team had successfully closed $150m from a variety of investors including Dragonfly Capital, a16z and Alameda. Another significant gainer this week is Luna, the native token of the Terra blockchain, which is up about 24% in the last seven days.

Fifteen days into 2022 and already it appears to be shaping up as a breakthrough year for CBDCs, with an increasing number of governments buying into a growing sense of FOMO. Earlier this week, the Bank of International Settlements published a fantastic resource to get you up to speed on CBDC pilots (of which there are now 28), and the 68 central banks that have publicised their digital currency work.

Speaking of fantastic resources, the first research newsletter by our research lead, Fadi Aboualfa, should have landed in your inbox on Thursday. If you didn’t get a chance to read the January Analyst Retrospective report yet, you can access it here.

Good to see our events calendar start to fill up again, so make sure to keep a close eye on the bottom part of the newsletter going forward. From in-person events, webinars, AMAs to hard forks, I’m sure that there’ll always be something that piques your interest. As usual, for any questions or comments, send me a note.

Best Regards,

Iva Lila

Beneath the headlines

Sequoia Capital and crypto VC Paradigm set to invest $1.15bn into Griffin’s Citadel Securities. Why is Citadel taking investment from a crypto-focused VC? 

In one of the most exciting developments of the week, stock trading giant, Citadel Securities, looks poised to dive into the world of crypto. On Tuesday. the multinational hedge fund and financial services giant announced that it had raised $1.15bn to reach a valuation of $22bn in its first-ever external funding round. The fundraise is being widely interpreted as a likely precursor move into crypto given who the investors are: Sequoia Capital and crypto VC firm, Paradigm.

Founded in 2018 by Coinbase co-founder, Fred Ehrsam, and Matt Huang (a veteran of Sequoia), and Paradigm is one of the most prolific crypto investors with an enormous portfolio that includes Coinbase, Cosmos, Uniswap, and Ethereum scaling solutions like Optimism, leaving Citadel Securities to stick out like a sore thumb in Paradigm’s roster.

Citadel Securities CEO, Peng Zhao, earlier this week said the firm’s partnership with Paradigm and Sequoia should allow it to scale the business into new markets and bring in more talent. Paradigm’s Huang provided a tad more clarity in his statement, explicitly mentioning that one of the new markets includes crypto. Yes, crypto!

Citadel founder, Ken Griffin, has previously been notoriously dismissive of our space, slamming digital assets as ‘a jihadist call‘ against the dollar. In October 2021, he notably said that Citadel had not yet set up crypto trading because of regulatory uncertainty. The mystery is why would he change his mind less than three months later? Does he know something we don’t?

If Citadel Securities does indeed enter the digital asset space, it would be enormously significant given the firm’s sheer size and influence as a top market maker in US equities, options, fixed income and ETFs.

Also, simply the fact it has accepted a mega investment by a crypto-native firm demonstrates that the legacy Wall Street firm is happy with the digital asset association – importantly highlighting how far the space has come.

Elsewhere, in other Citadel-crypto related news, it was reported that John Macdonald, former MD and CTO at Citadel Securities in Europe, has now joined major crypto market maker (and Copper client) GSR as its new CTO. Even though we’re only two weeks in 2022, it already looks like this will be the year traditional finance joins the pack.

PayPal is exploring creating its own stablecoin. How would a stablecoin from PayPal shake up the market? Is PayPal partner Paxos involved?

The number of issuers in the $166bn stablecoin market looks set to multiply in 2022, as demonstrated by PayPal’s confirmation that it’s exploring the development of a stablecoin pegged to the value of the US dollar.

The online payments giant’s senior vice president of crypto and digital, Jose Fernandez da Ponte, told Bloomberg in a statement that: “We are exploring a stablecoin; if and when we seek to move forward, we will of course, work closely with relevant regulators”. This declaration followed the discovery of a ‘PayPal Coin’ logo within the company’s iOS app by developer, Steve Moser.

With over 375m daily active users and 30m merchants on the platform, PayPal’s stablecoin play could potentially shake up the market, as it did in late 2020 when it became one of the first major corporations to embrace the digital asset domain – fuelling a bull run.

The company’s exploration of a PayPal Coin is thought to be indicative of an ambition to become more competitive in the cross-border remittance market, where evidence shows that 23% of US consumers who send remittances do so using cryptoassets.

A key question now is whether the company will be leaning on its relationship with partner and stablecoin issuer, Paxos, to develop the stablecoin. Paxos has notably developed Binance’s US-dollar backed USD stablecoin, and was also tapped by Meta for its Novi digital wallet project.

If the PayPal stablecoin does come to fruition, it will also be interesting to see just how much the company would need to adapt to the shifting regulatory landscape. November’s PWG stablecoin report called for Congress to urgently pass a law that requires stablecoin issuers to become federally chartered banks. As a reminder, PayPal is not a bank, but a money transmitter. Would the firm be potentially willing to accept a high level of bank supervision in its quest to offer a stablecoin? At this moment in time, it’s difficult to say exactly how all of this will play out.

US Rep Tom Emmer sees dangers in allowing the Fed to offer a CBDC directly to individuals. Is this an alarmist take, or do the risks posed by CBDCs to American citizens outweigh its benefits?

This past week saw a stream of important CBDC-related announcements. Visa said its joining its rival Mastercard in offering central banks a way to test retail applications for CBDCs, Jerome Powell confirmed the Fed’s highly-anticipated report on CBDCs is ‘ready to go‘, while India’s central bank confirmed that it’s setting up a fintech department to oversee CBDC development. What I certainly didn’t bet on was the announcement from Minnesota Representative, Tom Emmer, on a proposed law that would bar the Fed from issuing a CBDC directly to individuals.

In a Twitter thread about the legislation, Emmer cited financial privacy concerns and ‘single point of failure issues’ stemming from CBDCs lack of proper decentralised consensus. He also pointed to China’s digital yuan as a means of extending oppressive state surveillance and control over Chinese people’s lives, noting that, “requiring users to open up an account at the Fed to access a US CBDC would put the Fed on an insidious path akin to China’s digital authoritarianism.”

“The Fed does not, and should not, have the authority to offer retail bank accounts.” He said. “Regardless, any CBDC implemented by the Fed must be open, permissionless and private. This means that any digital dollar must be accessible to all, transact on a blockchain that is transparent to all, and maintain the privacy elements of cash.”

The introduction of the bill came just one day after Jerome Powell said the Fed would soon be releasing its delayed report on CBDCs. In a confirmation hearing before the Senate Banking Committee, Powell also answered in the affirmative when Senator Pat Toomey questioned the Fed’s ability to act as a retail bank.

Circling back to Emmer, the congressman has been praised by a large chunk of crypto community for addressing the privacy and civil liberty concerns posed by CBDCs. Whereas others have commented that the proposal of the bill underscores just how much the lobbying power of the ‘new money elite’, aka crypto billionaires, has ballooned.

For those of you not familiar with the Rep Emmer, he has previously advocated for greater regulatory clarity of digital assets in the US through legislation, introducing bills in May and July 2021. He also questioned the SEC’s decision not to approve a Bitcoin ETF, appealing directly to SEC chair Gary Gensler. Most recently, Emmer notably appeared on the popular blockchain podcast, On The Brink, to share his thoughts on crypto policy.

Roundup of other key developments

INSTITUTIONAL

WisdomTree adds bitcoin futures exposure to fund, refiles for spot ETF.

World’s biggest inter-dealer broker TP ICAP launches crypto ETPs.

21Shares unveils world’s first terra crypto ETP.

Coinbase wades into crypto derivatives with deal for futures exchange.

LEGAL + REGULATORY + GOV + CBDCs

Bitfinex withdraws from Ontario amid major push against centralised exchanges.

Congress announces hearing on crypto’s energy use and environmental impact.

Pakistan to investigate Binance for multi-million dollar scam.

Kosovo seizes hundreds of cryptocurrency mining devices.

CBDC wallet tops mobile app store charts in China.

Russian authorities raid REvil hackers, seize luxury cars and crypto.

Central Bank of Bahrain trials JPMorgan blockchain and token.

Thailand government to clear up crypto tax confusion.

Moody’s sounds alarm on El Salvador’s bitcoin policy.

COMPANY + CeFi

FTX launches $2bn venture fund.

Gemini acquires crypto asset management platform Bitria.

Owner of Russian bank Tinkoff acquires Swiss digital asset firm.

Canadian bitcoin miner Bitfarms buys 1,000 BTC for $43m.

Crypto data firm Lukka hits $1.3bn valuation with new funding round.

Former CFTC chair Giancarlo joins CoinFund as an adviser.

DeFi + WEB3 + NFTs + METAVERSE

China to build its own NFT industry not related to crypto.

OpenSea surpasses one million active user wallets.

OpenSea competitor LooksRare exceeds $394m in sales.

BinanceUS is building an office in the Solana Metaverse.

What to watch out for this week

SATURDAY 15 JANUARY

SherpaX mainnet launch. More

MONDAY 17 JANUARY

Day one of the Global Blockchain Business Council’s (GBBC) Blockchain Central Davos conference. Although the event will not be held in person at Davos as anticipated, it promises to be a fantastic one with speakers including our CRO, Boris Bohrer-Bilowitzki, as well as other industry leaders including Brian Brooks, Matt Zhang, Michael Moro, David Siemer, Steven Kokinos and more. To attend, claim your free ticket here.

Day one the North American Bitcoin Conference, where our Head of Sales – Americas, Glenn Barber, will be presenting at 3pm EST on capital efficiency and counterparty risk. More

TUESDAY 18 JANUARY

Polygon London Hardfork. More

Deri Protocol AMA. More

Celsius fireside chat. More

NFT marketplace on Stratis launch. More

WEDNESDAY 19 JANUARY

At 9:15am ET (2:15pm GMT), Copper’s Boris Bohrer-Bilowitzki takes part in a panel discussing the next generation of market infrastructure with Talia Klein (BNY Mellion), Andre Portilho (BTG Pactual), Tanya Shastri (VMware) and Geoffrey Goldman (Shearman & Sterling) at the Global Blockchain Business Council’s (GBBC) Blockchain Central Davos conference. Register for free here.

THURSDAY 20 JANUARY

Livepeer security audit. More

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