This was an eventful week in crypto, with global regulatory guidance coming out, a a DeFi protocol being hacked for $130 million, and would-be bitcoin-related ETF issuers multiplying.
And read on to find out all the other big stories in crypto this week.
On Thursday, the Financial Action Task Force (FATF), a global anti-money laundering watchdog, published its finalized guidance for regulating the crypto industry.
The draft of this guidance, published last spring, veered in the direction of expanding rules that traditionally apply to transactions involving financial intermediaries to peer-to-peer transactions and even to wallets managed by individuals or “self-hosted.” Several crypto lawyers and advocate groups such as Coin Center and Jake Chervinsky find that the finalized guidance appears to be better, in some respects, than the draft, but otherwise is too vague.
What effect this has in practice remains to be seen, since today’s publication is merely guidance, not law. Member countries decide whether or not they choose to implement the FATF-recommended guidelines.
What’s improved: As a reminder, the FATF is the organization that advocated applying the travel rule to virtual asset service providers (VASPs) such as crypto exchanges and money transmitters, to collect and report information on parties participating in transactions. Last spring’s draft guidance could have required such reporting from those “facilitating” or “governing” transfers, such as miners and stakers. Now the requirement applies to persons with “control of VAs [Virtual Assets].” It also does not put such obligations on crypto protocol developers. Most importantly, it no longer applies the travel rule to transactions that occur between a business and a self-hosted wallet.
For dapps, VASP reporting requirements are unclear -- especially for developers or anyone with “control or sufficient influence in the DeFi arrangements.” The FATF appears to believe that many heads of decentralized protocols would fall under the VASP definition."It seems quite common for DeFi arrangements to call themselves decentralized when they actually include a person with control or sufficient influence, and jurisdictions should apply the VASP definition without respect to self-description," said the guidance.
On Twitter, Miller Whitehouse-Levine, policy director at DeFi Education Fund, wrote:
“tl:dr, it’s not great. My initial read is that the FATF sees a world in which permissionless + decentralized systems are—at best—suppressed...From the guidance, it seems that the FATF is having trouble coping with the fact that DeFi eliminates those intermediaries.”
Marc Boiron, dYdX’s general counsel tweeted the FATF’s recommendations are “so bad that it makes the infrastructure bill look reasonable …. Only permissioned DeFi is allowed. An intermediary must be inserted to serve as a VASP. The global impact of these recommendations is an attempted kill shot at DeFi.”
Mastercard is partnering with Bakkt, a crypto payments firm, to enable cryptocurrency services for its partners across the US. Through Mastercard’s Crypto-as-a-Service platform, any Mastercard partner, be it a merchant, bank, or fintech, will soon have the ability to let consumers buy, sell, and hold digital assets through custodial wallets powered by Bakkt. Mastercard is also integrating crypto into its loyalty program.
Mastercard adding support for Web3 payment rails could lead to a significant expansion of users interacting with cryptocurrency. According to CNBC, Mastercard has relationships with over 20,000 financial institutions and supports 2.8 billion credit cards.
Shares of the recently-listed Bakkt, which announced a similar partnership with Fiserv this week, jumped 234% on Monday, coinciding with the Mastercard press release.
Speaking of Crypto Adoption...
According to Bloomberg, the Houston Firefighter’s Relief and Retirement Fund (HFRRF) invested $25 million into bitcoin and ether, becoming one of, if not the, first public pension plan that has done so in the US. The fund holds over $4 billion in assets.
On Wednesday, Bitcoin dropped below $60,000. El Salvador’s President, Nayib Bukele, announced the country “bought the dip,” to the tune of 420 BTC.
Two US banks signed up to become the first US institutions to offer bitcoin trading through a platform designed by Q2 Holdings and New York Digital Investment Group, allowing customers to purchase, hold, and sell bitcoin in their banking apps.
According to an SEC filing, Tesla might start accepting Bitcoin as payment again -- and even hinted that it could accept other cryptos as well.
The second bitcoin futures ETF, managed by Valkyrie, listed last Friday, bringing in $80 million during its first trading day under the ticker $BTF on NASDAQ.
Since then, Valkyrie filed to offer a 1.25x leveraged Bitcoin ETF. However, according to the Wall Street Journal on Thursday, the SEC instructed one ETF provider not to proceed with its leveraged product, indicating that it will not approve Valkyrie’s leveraged bitcoin futures ETF.
Direxion, an ETF issuer, also got creative with a bitcoin futures ETF filing. On Tuesday, the company filed its Direxion Bitcoin Strategy Bear ETF, which will maintain short exposure to bitcoin futures contracts on CME. “The fund will generally maintain its short exposure to bitcoin futures during periods in which the value of bitcoin is flat or declining as well as during periods in which the value of bitcoin is rising,” the filing said.
While it remains to be seen whether the SEC approves Direxion’s ETF, it appears that a third bitcoin futures ETF is set to list. The VanEck Bitcoin Strategy ETF is “ready for launch,” according to Bloomberg’s Eric Balchunas, who expects the fund to start trading Friday when this newsletter publishes.
Balchunas also noted that a glut of bitcoin ETFs filed for registration. He tweeted:
Cream Finance, a DeFi money market and lending service, lost $130 million worth of crypto tokens on Wednesday, making it the third-worst DeFi hack in history, according to Rekt.
PeckShield Inc. initially identified the exploit as a flash loan attack. Based on Etherscan records, it appears the hacker interacted with 69 different tokens and paid only 9.16 ETH to pull off the heist.
Mudit Gupta, a blockchain security researcher, posited that the hacker was two people -- most likely DeFi devs -- working from a shared account.
Notably, this is not the first time Cream Finance has suffered a flash loan attack. The DeFi protocol was additionally exploited for $37.5 million in February and $18.8 million in August.
Based on data from The Block, this brings the total amount of funds stolen from DeFi protocols over $500 million.
Jelena McWilliams, chair of the Federal Deposit Insurance Corporation, believes that regulators should be looking into how US banks might hold digital assets for themselves and their clients.
The FDIC chair spoke at Money 20/20 in Las Vegas on Monday, where she explained her regulatory approach to crypto assets. McWilliams said that her “job is to provide clear rules of the road” to let crypto innovation flourish in the US -- just like it did with the internet.
According to her speech, the FDIC plans to issue a series of policy statements on how existing rules and policies apply to crypto assets in the coming months. McWilliams says the FDIC is working with the Federal Reserve and Office of the Comptroller of Currency in a “crypto sprint” to best coordinate policies for banks in the crypto space.
The FDIC chair stated that crypto assets belong on bank balance sheets, as reported by Reuters. “At some point in time, we're going to tackle how and under what circumstances banks can hold them on their balance sheet,” said McWilliams.
On Tuesday, Robinhood, the popular trading platform, revealed its Q3 earnings report, which showed that crypto revenue dipped almost $200 million compared to the second quarter. According to the report, crypto revenue fell to $51 million, marking a 78% collapse from its $233 million Q2.
The lack of crypto revenue left its mark on Robinhood’s total revenue, which hit only $365 million in Q3 after topping $550 million in Q2.
According to Bloomberg sources, the Commodity Futures Exchange Commission (CFTC) is investigating Polymarket, a prediction market-based dapp that allows users to predict outcomes of future events. Bloomberg reports the regulator is "investigating whether Polymarket is letting customers improperly trade swaps or binary options and if it should be registered with the agency."
As of now, the dapp has not been accused of wrongdoing. “Polymarket is firmly committed to complying with applicable laws and regulations and to providing information to regulators that will assist them with any inquiry,” a Polygon spokeswoman told Bloomberg.
Speaking of the CFTC, acting chair Rostin Behnam asked to become the “primary cop” on the crypto regulatory beat during an appearance before the Senate Agriculture Committee. Benham added that “market transactions that are taking place right now are a huge part of the risk that digital assets pose.” He went on to request a more robust “regulatory structure for both securities and commodities.”
Benham’s words came during the same week that SEC chair Gary Gensler, who has been lobbying for more regulatory control over crypto, took aim at DeFi. “There's a lot of lending going on. There's a lot of trading going on. And without protections, I fear that it's going to end poorly,” said Gensler. In the past, he has said that most of the crypto assets he’s seen are securities, which furthers the turf war between the CFTC and the SEC.
Shiba Inu, which trades under the ticker SHIB, shot into the top ten coins by market capitalization this week -- at one point flipping its memetic forefather Dogecoin. According to data from CoinGecko, the meme token is up roughly 150% on the week, with a market cap of $40 billion, which is markedly larger than Deutsche Bank at $27 billion.
With the rise of SHIB comes massive wealth, especially for one investor, who might have pulled off the “greatest individual trade of all time,” as tweeted by Morning Brew. Someone, somewhere, believed in SHIB last August and bought roughly $8,000 worth of tokens. Fast forward to today, those tokens are now worth $5.7 billion -- good for a 71,249,000% return in just over a year.
Last Sunday, Tampa Bay quarterback Tom Brady threw his 600th touchdown -- a landmark accomplishment. However, his receiver gave the ball, which Brady wanted to keep, to a fan in the stands. The ball recipient graciously returned the ball, with Brady offering signed jerseys, a helmet, and season tickets.
Then, on Monday, the quarterback who also happens to be partnered with the cryptocurrency exchange FTX, announced on Twitter that the lucky fan would be receiving a full BTC in thanks for returning the ball.
That being said, one Bitcoin has quite a ways to go before matching the value of Tom Brady’s 600th touchdown pass, which is estimated to be worth $500,000.
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