Copper’s Weekly Dispatch – 22 February 2022

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

Copper

Some chop in the crypto markets this past week, mainly owing to growing Russia and Ukraine tension. Bitcoin is once again trading below $38k, while Ether is at around $2.6k. Both assets are down more than 15% in the past seven days.

It seems likely that geopolitical and macro forces will continue to create headwinds in both crypto and stock markets this coming week. But crypto – as they say – was built for chaos, and recent events are only serving to showcase the use of digital assets. Late last week, Ukraine moved to grant legal status to all cryptoassets, which is obviously huge news in the context of all that’s happening right now.

With the Bitcoin narrative also very much centred on Powell and Fed minutes, our research team released a report on Thursday that explores how things might play out for digital assets as the Fed signals a move away from quantitative easing. And because education of this industry is critical to wider adoption and core to our mission, our research team issued a second report last week. In his latest In-Depth, our research lead, Fadi Aboualfa, examined the most volatile days BTC has seen recently and assessed blockchain confirmation times against the price movement.

Before moving onto our top stories, don’t forget that the inaugural AYU Switzerland Hedge Fund Week is taking place from Monday 7 March – Sunday 13 March. The week will comprise of conference days in Zurich with social skiing in the gorgeous Verbier. If you’d like to join, there’s still time to sign up.

Best Regards,

Iva Lila

Beneath the headlines

Canada includes crypto and crowdfunding under laundering and terrorism finance laws. Will the Freedom Convoy protests be positive for Bitcoin’s censorship-resistant narrative?

Bitcoin’s utility in resisting financial surveillance has often been hailed its most valuable property. Just days after BTC recovered from the 2016 Bitfinex hack raised questions about bitcoin’s privacy features, unprecedented government overreach in Canada has brought renewed spotlight to the asset’s censorship-resistant attributes.

In an effort to restrict the flow of funds to the Freedom Convoy protestors, Canadian authorities invoked the Emergencies Act that forced all regulated financial institutions – including crypto exchanges – to cease trading and freeze the assets of those who participated or were believed to be funding the protests. This is all without going through the court system. Chilling stuff. Per CNN, the Canadian government has frozen more than 200 bank accounts and flagged 253 crypto addresses relating to the trucker-led protests.

Though the protests have now ended, the precedent being established in Canada has been horrifying to watch. As supposedly one of the world’s most liberal and democratic nations, the events unfolding show just how fragile freedom is. If it can happen there, it can happen anywhere.

These last couple of days, pretty much the entire digital asset community has come together to condemn Canada. A far cry from this time last year, when the crypto space was showering America’s cousins to the north with praise for leading the charge in approving the first publicly traded bitcoin ETF in North America.

Against the current backdrop, the need for a parallel economy has never been greater. In an interview on Friday at the ETHDenver conference, Ethereum founder, Vitalik Buterin, who grew up in Canada, succinctly noted that the government’s strong-armed response to the protest is why we need crypto. He said: “If the government is not willing to follow the laws and give people a chance to defend themselves, and they just want to talk to the banks and basically cut out people’s financial livelihoods without due process, that is an example of the sort of thing that decentralised technology is there to make more difficult.

Last week’s announcement from the FBI that it is launching a cryptocurrency crime unit, as well as the arrests in connection with the Bitfinex hack, all point to authorities becoming increasingly sophisticated when it comes to tracking the movement of digital assets.

I think we can all agree that there shouldn’t be a relationship between somebody’s ability to access the financial system and their right to free speech. Hopefully, the crackdown on civil liberties in Canada has served as an important and lasting reminder for 1) why bitcoin was born, and 2) the importance of getting educated on proper private key management and self-custody.

BlockFi pays the largest-ever SEC fine in a crypto case over its high-yield product. Does ‘regulation through enforcement’ meaningfully carve out a path to regulatory clarity?

Thought your Valentine’s Day was expensive? Spare a thought for crypto lender, BlockFi, which is paying the largest ever-penalty incurred by a crypto company to the tune of $100m, according to a statement from the SEC on 14 February.

The fine is being paid to settle charges by the regulator and 32 states alleging that the Jersey City-based firm failed to register its BlockFi Interest Account (BIA) lending product as a security. The BIA is one of six retail facing products the company has. It’s also arguably one of the most popular, given that it offers an attractive yield on cryptoassets at a time that inflation is running high and yield is hard to come by.

In addition to the penalty, BlockFi can no longer open new BIA accounts to US residents, and existing clients won’t be able to add funds to their existing accounts for yield. Moreover, the firm will need to attempt to become compliant with the provisions of the Investment Company Act within 60 days.

You’d think BlockFi would be rather irked about being $100m out of pocket. Not quite. The company voiced optimism on the settlement, assuring its clients that it finally has the regulatory clarity needed to register a new lending product called BlockFi Yield. This, it claims, would be the first SEC-registered crypto interest-bearing security.

Trying to gauge sentiment regarding the settlement, I’d say most crypto market participants have been cheering on BlockFi for turning the lemon it’d been handed into a very expensive glass of lemonade. The CeFi company has some deep pockets behind it, meaning it was able to use the SEC’s ‘regulation by enforcement’ to its advantage and provide increased clarity to other crypto lenders/similar platforms over having to register yield products as securities.

Meanwhile, the SEC has been the subject of rather scathing criticism for its ‘regulation by enforcement’ approach toward the crypto economy. Many are asking whether slapping hefty penalties for the crime of not knowing how non-existent regulations work is the most constructive way of regulating a nascent industry? Coinbase CEO, Brian Armstrong, famously blasted the SEC back in September 2021 for not working with the exchange to launch its high-yielding lending product (called Lend) writing on Twitter: “We’re being threatened with legal action before a single bit of actual guidance has been given to the industry.” Owing to the legal threats, Coinbase reluctantly abandoned its Lend product in due course. However, as hundreds of thousands of customers from across the US had signed up for the planned product, I’m not entirely convinced we’ve seen the back of Lend for good.

Shifting gears to the BlockFi settlement, I really love what Bloomberg’s Matt Levine had to say about the matter in his newsletter: “Each time the SEC says you broke the law, you get a little more information about what the law is, and each time you negotiate a settlement, you get an opportunity to influence the law. This is expensive, but maybe it works?”

On the back of the ruling, fellow crypto lender Nexo, has already amended the terms for its interest-bearing crypto products to US customers. Given the similarities of Nexo and Celsius, I wouldn’t be surprised if Celsius is next to revise its terms of service for American customers. But most of all, I look forward to seeing if/to what extent this ruling will sway US residents towards DeFi lending protocols.

Coinbase wades into the remittance market. How effective are digital assets in empowering the unbanked?

One of the crypto space’s most prominent names, Coinbase, last week announced its foray into the Mexican remittance business. The exchange seeks to challenge the multi-billion industry dominated by stalwarts like MoneyGram and Western Union, which famously incur relatively high costs.

According to a blog post, Coinbase is introducing an instant means of cashing out crypto sent to friends and family south of the US border. The exchange said it’s teamed up with payment processor, Remitly, to allow remittances to be exchanged in more than 37,000 convenience stores and other locations around Mexico. The service won’t incur any charges until March 31, 2022. After that, Coinbase said its option would still be 25% – 30% cheaper than traditional cross-border payment methods.

Coinbase’s remittance offering announcement comes as a report by the FT (citing data from the World Bank) states that money transfers between the US and Mexico grew 27% to reach a record $51bn in 2021. The growth is likely due to pandemic stimulus money from the US.

Looking at the international rankings, World Bank data reveals that that Mexico receives about 6% of global remittance payments – behind only India and China. Meanwhile last month, Mexico’s President Andres Manuel Lopez Obrador stressed the importance of remittances to the Mexican economy, acknowledging that its growth is likely the reason the country was able to avoid an economic crisis.

Cutting the cost of international money transfers can make a huge difference for emerging market economies. Because of this, I’m sure that Coinbase’s Mexico’s pilot crypto remittance program will be closely monitored in the same vein that El Salvador’s great bitcoin experiment is being watched to see if crypto can succeed in lifting people from poverty.

In the digital asset space today, there’s a ton of focus around crypto as an investment class that we often forget about its potential to disrupt traditional remittance incumbents, who’ve been taking advantage of people (particularly economically disadvantaged migrants) for far too long. This is why I’m genuinely excited about Coinbase’s efforts to make the remittance process more efficient. I also look forward to seeing whether its announcement will trigger a domino effect of other major crypto exchange players wading into this massive market.

Roundup of other key developments

INSTITUTIONAL

Fidelity debuts bitcoin ETP on the Deutsche Börse and SIX Swiss Exchange. More

Valour expands crypto ETP range with Terra and Avalanche launches. More

21Shares lists MANA, AAVE, FTX ETPs on Euronext Paris and Amsterdam. More

LEGAL + REGULATORY + GOV + CBDCs

FED puts new bans on trading in stocks, bonds, crypto or commodities. More

Ukraine parliament legalises cryptocurrencies. More

Russia’s Finance Ministry introduces digital currency bill. More

Italy formally lays out crypto firms’ new AML requirements. More

FBI launches new crypto crimes unit. More

KB Bank to launch South Korea’s first crypto investment fund. More

Iran aims to develop a CBDC. More

Jamaica finalising steps to debut its CBDC. More

COMPANY + CeFi

Coinbase rewards researcher $250k for discovering ‘market-nuking’ bug. More

Uber will ‘absolutely’ accept bitcoin as payment in the future, CEO says. More

London Stock Exchange buys TORA for $325 million in digital asset push. More

Circle seeks to double valuation to $9bn in Spac deal. More

Bitpanda to provide crypto custody with the acquisition of Trustology. More

Singaporean megabank DBS works on expanding Bitcoin trading to retail. More

Sequoia Capital launches crypto fund worth up to $600m. More

DeFi + WEB3 + NFTs + METAVERSE

OpenSea says millions of dollars worth of NFTs were stolen in phishing attack. More

DeFi ETFs take flight in Brazil with two launches this month. More

JPMorgan is the first bank into the Metaverse, looks at business opportunities. More

NYSE trademark application spotlights marketplace for NFTs. More

GameFi thriving as January saw $1bn invested in blockchain games. More

What to watch out for over the coming days

TUESDAY 22 FEBRUARY

The HedgeWeek webinar, Institutionalising Digital Assets: Powering the hedge fund crypto surge, begins at 3pm GMT. Our Chief Strategy Officer, Asen Kostadinov, is speaking. More

Cudos mainnet launch. More

Hydra Network hard fork. More

WEDNESDAY 23 FEBRUARY

Imperial Business School DigiTalks webinar on Market Structure for Digital Assets in 2022 and beyond. Copper CEO, Dmitry Tokarev, is the guest speaker. More

THURSDAY 24 FEBRUARY

Copper team to attend The HedgeWeek Hedge Fund US Digital Assets Summit at the University Club of New York. More

FRIDAY 25 FEBRUARY

Travala.com airdrop. More

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