Circle research

Weekly Crypto Recap 3/8-3/14

Know & go

  • Top story of the week: We provide key takeaways from Wyoming’s new blockchain-friendly bills.
  • Circle Research Survey: ICYMI, please fill out a short survey to help us find out more about our readers, their interests, and any way we can make our content even better.
  • Three things to know: (1) Cosmos went live (2) Invesco Elwood Global Blockchain ETF started trading on the LSE (3) Colorado’s “Digital Token Act” went into effect.
  • Market snapshot: Total crypto market capitalization is around $136.7 billion at press time, up 2.1% w/w. BTC is trading at $3955 (up 0.7% w/w), ETH is at $136 (down 1% w/w). BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by BitMEX) is 44.5%, down ~5% w/w.
    (3/15 11AM ET)

Weekly market snapshot

Top Story

Last week, Wyoming released new forward-thinking blockchain laws, establishing clear and structured legislation for crypto and blockchain projects and companies. Driven by the efforts of the Wyoming Blockchain Coalition, which is spearheaded by Caitlin Long and other volunteers, Wyoming has passed a total of thirteen laws since 2018. Our understanding of key highlights of the Wyoming laws is as follows:

Fintech sandbox. The newly created sandbox exempts blockchain companies and projects from all financial regulations for up to three years if they apply with a local regulator in Wyoming beforehand. The only laws that apply are consumer protection laws. So long as the business is not hurting consumers, they could be granted exemption for up to three years. Wyoming’s sandbox is reciprocal with sandboxes in other states (i.e. Arizona and Nevada) and outside the US in regions like Bermuda.

State chartered depository institutions. Wyoming has authorized a state charter for banks that provide banking services to blockchain projects and companies that are limited in their activities. They will still have to comply with federal KYC/AML requirements. But importantly, these entities will have to maintain 100% reserves and cannot lend out deposits (thus will not pay interest on deposits). As a result, they will not have to be FDIC-insured, which means the FDIC won’t be able to scrutinize and shut down these entities. This structure is intended to address the risk of legitimate blockchain companies having their bank accounts closed because they are in a “high risk” industry (which carries greater compliance overhead and risk for FDIC-insured banks that provide services to the industry). FreeRange, a New Mexico based entity, is planning to relocate to Wyoming and apply for the state charter to become the first state chartered digital asset bank.

Custody. Institutional investors are required to custody their assets with custodians (i.e. they cannot self-custody their assets). Investors in traditional securities have a debtor/creditor relationship with their financial counterparties - they have indirect ownership. According to this article, D.C. Donald notes, “under the indirect ownership regime, securities intermediaries are not required by law to have on hand the securities they sell to you.” On the other hand, investors that use Wyoming-domiciled custodians for digital assets will retain direct ownership over their assets. The investor never loses ownership of the asset - rather, the custodian holds assets on investors’ behalf, as required by law. This means the custodian cannot do anything with the asset (i.e. lend it out).

Super negotiability. Regarding commercial law and property law, state rules trump federal rules. One aspect of Wyoming’s new commercial laws is that when someone purchases what the state classifies as “virtual currencies”, they are subject to the same rules that apply to money under commercial law. In other words, they legally own the virtual currency even if there was a previous lien against it, "as long as the transferee isn’t colluding to avoid the lien". This is referred to as “super negotiability”. Caitlin Long states that the importance of this feature rises as crypto lending rises because the likelihood that there’s a prior lien against “virtual currencies” goes up.

These are just a few takeaways from the eight bills that Wyoming recently passed to create a friendly and structured environment for blockchain businesses. For a comprehensive overview of all the new blockchain legislation established in Wyoming, we recommend this article by Caitlin Long.

In other news

  • The Invesco Elwood Global Blockchain ETF started trading on the London Stock Exchange earlier this week. The ETF will initially invest in 48 companies, including crypto mining chip manufacturer Taiwan Semiconductor Manufacturing and exchange operator CME. Source.
  • Cosmos, a project focused on interoperability between blockchains, officially went live this week. Source.
  • The Bitcoin Private (ticker BTCP) development team sent a legal letter to crypto exchange HitBTC claiming their privacy-focused coin was unjustly removed. HitBTC delisted BTCP, the result of a 2018 Bitcoin and ZClassic hard fork, after its supply was unintentionally destroyed following a sanctioned coinburn initiated by the Bitcoin Private team. Source.
  • Crypto wallet provider MyEtherWallet is launching an open-source blockchain explorer called EthVM Alpha. The new product is meant to provide easy blockchain navigation to help users better understand the Ethereum network. Source.
  • Veriblock reported the daily transaction count for Bitcoin dropped 42% over the 10-day period from February 21st to March 4th. This drop coincided with the end of Veriblock’s testnet. Veriblock is a development team building a service that will enable other networks to inherit the security and consensus mechanism of a more secure blockchain, like Bitcoin. During the testnet phase, the company captured anyway from 25-45% of all Bitcoin transactions. Source.
  • Japan-based bank Mizuho launched a new digital wallet called J-Coin Pay. The wallet name is a bit misleading as it doesn’t involved a cryptocurrency or a blockchain. Instead, Mizuho hopes to bring Japan’s economy into the age of electronic cash through a service similar to Alipay or WeChat Pay. Source.
  • Fraud detection project Crypto Integrity released the second report in as many weeks that revealed suspected wash trading across crypto exchanges. The report claimed that about 88% of liquid traditing pair volumes and up to 100% of illiquid pair volumes were artificial. Last week, CoVenture found actual volume for two of the top five liquid trading pairs is less than 1% of reported volume. Source.
  • The New York Times posted a job opening looking for someone to help research and build a blockchain proof-of-concept for news publishers. The posting was short-lived, however, as it was taken down after other news publications picked up on the story. Source.
  • Earlier this week, crypto exchange Bittrex announced it would launch an initial exchange offering (IEO), similar to Binance’s launchpad service, for XRD.GG and their token RAID. Bittrex cancelled the IEO a few days later after questions were raised about the legitimacy of the company behind RAID. Source.
  • Stellar Lumens (XLM) has finalized a brand change and has also officially been added to Coinbase Pro. Support for XLM is now available in all of Coinbase’s jurisdictions, with the exception of New York State. Source.
  • Stablecoin project Carbon and the privacy-focused AZTEC protocol are partnering to create the first private, fiat-collateralized stablecoin on Ethereum. This project raises a number of potential regulatory concerns, but Carbon CEO Sam Trautwein does not “think there is an answer [to] that question today.” The privacy enabled stablecoin is scheduled to live on Ethereum in 3Q19. Source.

Crypto funding

  • Prompted by the recent pro-blockchain sentiment seen throughout Wyoming legal system, PitchBook analyzed the top VC investors in the blockchain space as well as the top funding rounds raised by blockchain focused companies. Digital Currency Group was by far the most active VC group, with 127 deals made since its founding in 2015. Coinbase‘s $300 million Series E round finalized in October of 2018 is still the largest VC deal made so far. Source.
  • Chinese ASIC manufacturer Canaan has apprently raised another funding round worth “hundreds of millions of dollars.” The company is now valued at over $1 billion and is seeking an IPO listing in the US. Source.
  • Ripple has established a $100 million fund for video game developers to be overseen by the recently launched Forte, a company led by prominent gaming executives and backed by some of the top VCs, including Andreesen Horowitz and Coinbase Ventures. Game developers will be rewarded with XRP to build on Ripple’s technology and the Interledger Protocol, an open-source interoperability solution for blockchains. Source.

Global regulatory roundup

  • Texas has proposed a bill that will require the recipient of a cryptocurrency transaction to first “verify the identity of the person sending the payment.” Verification is not required, however, if the payment is sent by “a verified identity digital currency.” No definition of a verified identity digital currency was provided. Source.
  • Colorado signed its Digital Token Act into law, exempting cryptocurrencies from securities regulations. Source.
  • Platinum Investment Associates (PIA) and Platinum Trading Institute of American (PTIA) are continuing their legal battle. PIA’s business involves training people and companies how to sell platinum backed ICOs. PTIA was paid 100,000 pound sterling to be PIA’s sole US representative, but failed to reach the agreed upon annual sales target. As a result, PTIA should owe PIA 35,000 pound sterling, but is refusing to pay citing PIA’s refusal to hand over sales data. Source.
  • North Korea hackers have apparently managed to steal up to $670 million worth of cryptocurrencies between 2015 and 2018, according to experts at the U.N. Security Council.The attacks were said to be carried out by the North Korean military corps and targeted cryptassets because they are hard to trace. Source.
  • SEC chairman Jay Clayton has agreed with Bill Hinman’s previously created framework used to assess whether a cryptocurrency should be deemed a security. Part of Hinman’s work states that digital assets are not “static,” meaning their classification as a security or not can change over time. This specific clause is what led ether to not be considered a security because its platform was determined to be sufficiently decentralized. Source.
  • The US SEC Strategy Hub for Financial Technology, otherwise known as FinHub, has organized a series of meetups that will allow entrepreneurs to interact with FinHub representatives. Source.

What we’re reading

What we’re listening to

Circle in the news

  • Poloniex enables Cosmos ICO participants to preview and claim their Atoms’ balance.
  • Poloniex completed a major systems upgrade that to enhance performance across wallet functionality, trade execution speeds and overall latency.

Where we’ll be in March

  • HashKey International Digital Asset Summit 2019, Hong Kong, 3/21
  • Akin Gump Annual Investment Funds Conference, Hong Kong, 3/21
  • MassChallenge Financial Services Executive FinTech Breakfast Discussion, 3/26
  • Boston College Crypto Club Event, 3/27

If you have any thoughts or questions, please reach out at [email protected].

Disclosures

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