Circle research

Weekly Crypto Recap 10/12-10/18

Know & go

  • Three things to know: (1) Fidelity enters the space as a qualified custodian (2) Goldman and Galaxy invest in BitGo (3) SEC announces FinHub, a portal to make it easier for crypto, blockchain and other tech startups to communicate with the SEC.
  • In other news, Tether (USDT) un-tethered from the USD and dropped as low as $0.85 due to unproven insolvency concerns and lack of a stable banking partner. It is now trading at $0.98 on CMC.
  • Total crypto market is up 2.7% w/w. It hit a high of $222 billion on 10/15. 19 of the top 100 by market cap are trading up in the last 24 hours. BTC volatility continues to remain low - .BVOL (the rolling 30-day annualized volatility as calculated by Bitmex) has been in the 32%-37% range since 10/5. This is likely due to a simultaneous decline in trading volume and activity in October.

Weekly market snapshot

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Chart sources: coinmarketcap.com, sifrdata.com, Circle

Top Stories

Strides in crypto custody. On Monday, Fidelity announced Fidelity Digital Assets, which will provide enterprise custody and trade order routing and execution to institutional investors (such as hedge funds, family offices, endowments, etc.). Fidelity manages $7.2 trillion in client funds and has 13,000 institutional clients. It plans on using cold storage solutions and "multilevel physical and cyber controls" (CNBC).

On Thursday, Goldman and Galaxy announced an investment in BitGo, a qualified crypto asset custodian, in its recent Series B round. According to BitGo, the company holds over $2 billion in assets and offers multisig digital wallets and offline vaults for over 75 crypto assets.

Large money managers are required by law to store clients' assets with qualified custodians. To date, traditional Wall Street firms have been wary about holding crypto assets due to a key vulnerability - hackers. According to CipherTrace, attacks have led to ~$927 million in losses from crypto exchanges and platforms in the first three quarters of 2018, already 3.5x higher than total losses in 2017.

While crypto companies like Coinbase, Xapo, itBit, BitGo, and others offer custodial solutions, the lack of solutions from traditional qualified custodians has kept institutional investors on the sidelines. Fidelity is the first Wall Street incumbent to offer crypto custody (CNBC). Thus, the announcements by Fidelity and Goldman/Galaxy are seen as positive developments for the space.

SEC announces FinHub. The SEC announced a new division called The Strategic Hub for Innovation and Financial Technology (FinHub) to help blockchain, AI, and fintech firms navigate securities law, get answers to their legal questions and request meetings. The regulator also plans to hold a second fintech forum around blockchain technology in 2019.

CFTC commissioner implicates developers. Brian Quintenz suggested that developers could be held guilty for crimes committed using their code. He also specifically mentioned that trades on prediction markets are analogous to trading binary options and that the CFTC has jurisdiction over such markets and has prohibited them in the past. Ryan Selkis and Drew Hinkes provide context and their thoughts.

Tether un-tethers. Recently, Noble Bank lost Bitfinex and Tether as customers. The Block reported that Tether is now holding its reserves at Bahamas-based Deltec Bank and Bitfinex' new banking partner is Hong Kong-based Bank of Communications. Tether unpegged from the USD, falling as low as $0.85, driven by insolvency rumors and uncertainty around banking relationships. This sent other stablecoins rallying past $1 (specifically GUSD). The situation has since stabilized. USDT is now trading at $0.98 on CMC.

In other news

  • Binance and Chainalysis partner to create a compliance solution leveraging Chainalysis KYT software to track criminal and illicit activity (Coindesk).
  • Genesis has loaned $553 million in crypto assets to institutional borrowers like hedge funds and other finance firms since launching the lending service in March. In September, the majority of the loans were in Bitcoin, and were mostly being used to hedge positions in derivatives that launched in December 2017 (Bloomberg).
  • The ADV of bitcoin futures on CME in Q3 grew 41% q/q and 170% relative to Q1. Coindesk also reported that of the 40% of trading of CME's futures outside the US, 21% is from Asia.
  • Bitfinex announced a new deposit process after halting fiat deposits last week due to "processing complications" (Coindesk).
  • Paradigm Foundation is building a decentralized comprehensive order book that lists every bid and ask spread from every crypto exchange and plans to have a beta by year end. It raised $1 million in an equity seed round from Polychain, Dragonfly, and Chapter One (Coindesk).
  • OKEx and Huobi announce that they will add support for four new stablecoins to their platforms: TrustToken's TUSD, Circle's USDC, Gemini's GUSD, and Paxos' PAX (Cointelegraph). BitPay adds support for GUSD (Gemini) and USDC (Circle).
  • Nasdaq is exploring launching a security token platform and is in talks with a number of firms including Symbiont. Other firms offering support for security tokens include Polymath, tZero, and TrustToken (The Block).
  • The PBOC (People's Bank of China) could be considering the digitization of the RMB. There have been multiple reports of the PBOC researching the development of its own digital currency in recent months (World Economic Forum).
  • Last week, Autonomous Next shared data showing that ICO funding is down 90% since January. They published a follow up this week explaining their methodology and why their measure of funding differs from other sources.
  • According to records, a lawsuit between Matt Liston v. Joey Krug, Jeremy Gardner, and Jack Peterson, involving Augur, has been dismissed. Details around the settlement are unclear (Forbes).
  • Qtum announces partnership with AWS China to help AWS users develop smart contracts (Coindesk). Qtum closed up 10% on 10/17 (11:59PM UTC). Read more about Qtum in our primer.
  • Coinbase added 0x (ZRX) to it's consumer app (Blog).

What we’re reading

  • Futility tokens. A futility token is a token that already exists but has no function and thus should have no value. Gregory Rocco discusses how token projects are trying to address the fact that their tokens have no utility by reclassifying the tokens, buying back tokens, redistributing tokens, etc. to attempt to stay in the clear in the regulatory sense. He discusses four projects - Digipulse, Mercury Protocol, Cofound.it, and Iconomi.
  • Why Isn't Bitcoin Banned Everywhere? In his essay, Haseeb Qureshi ponders why Bitcoin is legal when it was built as a way to challenge traditional institutions. He mulls over three potential reasons (1) "all innovation is good innovation" (2) governments aren't aware of the threat bitcoin poses to them (3) bitcoin doesn't actually pose a threat to governments. He believes the latter is true and explains why.
  • FastBreak: How should we fight crypto scammers. This feature by The Breaker gathers the opinions from experts on news and trends in the space. This week, The Breaker interviews Larry Cermak, Ricardo Spagni, @bccponzi, and David Golumbia on topics such as ICOs, scams, and the regulatory landscape.
  • If games drive crypto mass adoption, they will be grassroots. In this essay, Tony Sheng explains, while crypto can address complaints that video game users (such as Fortnite users) have, it is against the interest of the Epic (the company that built Fortnite) to solve these problems. Tony believes crypto will rather be used in games that “have real scarcity or [are] economic games at the core”.

What we’re listening to

Circle in the news

Where we’ll be in October

  • Uprise Festival, Dublin, IE, 10/17-10/18
  • Mars Finance Blockchain Summit, New York, NY, 10/18
  • Money 20/20, Las Vegas, NV, 10/21
  • Web3 Summit, Berlin, DE, 10/22-10/24
  • Multicoin Summit, New York, NY, 10/24
  • Crypto Challenge Forum, London, UK, 10/28-10/30
  • #DeFi Summit, Prague, Czech Republic, 10/29
  • Hong Kong FinTech Week, Hong Kong, 10/30-11/2
  • DevCon 4, Prague, Czech Republic, 10/30-11/2

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

Disclosures

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