The crypto markets were down quite a bit earlier this week, with the total crypto markets dipping below $1.9 trillion a few times. In the last seven days, Bitcoin traded below $40,000 briefly, and ETH also dropped under $3,000.
And yet, the NFT market was booming. As of Thursday, January 13, OpenSea’s monthly volume has already exceeded the monthly volumes for all of November and all of October. The number of monthly active traders has also surpassed the totals from August, September, October and November.
On top of that, a "vampire attack" on OpenSea (a strategy for luring the users of one service to another one by offering them token rewards) by a new NFT platform called LooksRare has also been generating huge volumes -- more than $500 million worth on Wednesday alone.
I discuss the heating up of the NFT markets with Aftab Hossain, aka @iamDCinvestor on Twitter, in the latest episode of my podcast, Unchained. We cover whether or not the vampire attack could force OpenSea to tokenize and/or decentralize some of its operations, why for his future NFTs, he's more likely to use LooksRare, and why he considers some royalties paid to creators on secondary sales a "tax," while others, he's happy to pay.
Be sure to check out this fascinating dicsussion -- and learn why he thinks even if the overall crypto markets remain down, NFTs will still be hot.
Now, onto the other major news of the week.
On Sunday afternoon, the total crypto market dipped to lows not seen since September 2021. Bitcoin led the way, dropping below $40,000 for the first time in roughly three and a half months. Overall, the crypto industry’s market cap hit a weekly low of $1.86 trillion on Sunday before bouncing up above $2 trillion for the rest of the week. According to data from Coinglass, the market drop saw over $300 million worth of positions liquidated on the 9th, which is the third time this has occurred in 2022.
The dip coincides with big-time money flowing out of digital asset investment products. CoinShares notes that digital asset investment products experienced the largest outflow of money on record for the week ending January 7th.
Bitcoin- and Ethereum-based products were hit especially hard, losing $107 million and $39 million, respectively.
The CoinShares data shows four consecutive weeks of outflows, which has not happened since September. The firm points to last week’s Federal Open Market Committee meeting as the catalyst for the market drop, which hinted at inflation risks and the possibility of interest-rate increases (a take that Haseeb Qureshi agreed with on the Chopping Block).
Block CEO and avid Bitcoiner Jack Dorsey announced plans via email to set up the “Bitcoin Legal Defense Fund,” a non-profit organization aiming to protect Bitcoin developers from legal pressures. Dorsey wrote, “The Bitcoin Legal Defense Fund is a non-profit entity that aims to minimize legal headaches that discourage software developers from actively developing Bitcoin and related projects such as the Lightning Network, Bitcoin privacy protocols, and the like.”
According to Dorsey, the fund’s first goal is to coordinate and organize defense for Bitcoin developers in a lawsuit coming from Tulip Trading Limited, a company associated with Craig Wright, who claims to be Satoshi Nakamoto and was a leader in the Bitcoin Cash and Bitcoin Satoshi’s Vision forks.
Dorsey makes it clear that the board, which includes himself, Chaincode Labs’ Alex Morcos, and Martin White, an academic at the University of Sussex, is not seeking additional money for operations but may in the future.
Cash App, the Block-owned payments platform, has begun integrating Lightning Network into its iOS mobile app.
Lightning Network is a Bitcoin scaling solution that allows users to transact cheaply and efficiently without settling on-chain. Lightning has grown from holding just over 1,000 BTC to 3,344 BTC in the past year (which means roughly $150 million in bitcoin is locked in the Lightning network). While that growth is impressive, Cash App may bring an even further stampede of Bitcoin to the layer 2 solution, as data shows that Cash App ranks as the 14th most popular app in the Apple’s US App Store. Furthermore, in a recent report, the company noted that over 40 million users transact on its platform each month.
Lightning Network should also receive a boost in activity from Strike, a Lightning-based company led by Jack Mallers. Strike announced that its Lightning Network-enabled app is extending its reach to Argentina. “Expanding a bitcoin/lightning payments operation into a country with a 50% annual inflation rate and 45 million people seems like a decent product-market fit,” commented Lyn Alden, an economist, on Twitter.
In related news, the Wall Street Journal published a piece on how citizens of Turkey are turning to Bitcoin and Tether in lieu of the Turkish lira. Notably, Esra Alpay, the chief marketing officer at the Turkish crypto exchange Bitlo, told the WSJ, “The Turkish lira’s volatility and rising inflation seen in recent months has led our investors to see cryptocurrency as a profitable investment in the long term and as a hedge against inflation in the short term.” The Wall Street Journal notes that the lira is down 40% against the US dollar since September, which has led to crypto trading volumes in the lira jumping to $1.8 billion per day – despite the country banning cryptocurrencies last year.
Citadel Securities made headlines on Monday by taking $1.15 billion in capital from two venture firms, Paradigm and Sequoia. The deal values the market maker at approximately $22 billion. Citadel Securities is massive. According to its website, the firm handles 27% of equities volume traded on the US stock market each day and executes 37% of US-listed retail volume. (Because Robinhood makes a lot of money from Citadel in exchange for data on its users’ trades, when Robinhood halted purchases of GameStop stock in early 2021, rumors swirled that Robinhood was acquiescing to a request from Citadel. However, the real reason was because Robinhood did not have enough collateral for the compliance demands from the Gamestop mania.)
However, based on comments from Paradigm cofounder Matt Huang in the press release, it sounds like Citadel will be moving into crypto. “We look forward to partnering with the Citadel Securities team as they extend their technology and expertise to even more markets and asset classes, including crypto,” wrote Huang.
On Wednesday, crypto exchange Coinbase announced the acquisition of FairX, a US-based, CFTC-regulated derivatives exchange. The purchase could soon allow Coinbase to offer regulated derivatives products to their US customers. The press release noted, “The development of a transparent derivatives market is a critical inflection point for any asset class and we believe it will unlock further participation in the cryptoeconomy for retail and institutional investors alike.”
Data from CoinMarketCap shows that Binance did $53.4 trillion in derivatives trading volume in the 24 hours (ET time) spanning Wednesday. Spot volume during the same stretch on Binance was only $17.3 trillion.
On Monday, during a CNBC interview, Securities and Exchange Commission chair Gary Gensler was asked whether Ethereum is a security or not. Gensler responded carefully, saying, “We don't get involved in these types of public forums talking about any one project, one possible circumstance or give legal advice over the airwaves that way.” However, he then added (in a somewhat ominous tone for ETH holders) that if "you're raising money from the public and the public is in anticipation of profit, based upon that promotor, sponsor, that group's efforts, that's within the securities laws."
In 2018, Bill Hinman, the SEC director of corporation finance, said in a speech, “putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.” However, this is not quite the same as an official position by the SEC.
Joseph Kent, a software engineer and former tech lead for Elizabeth Warren’s 2020 presidential campaign, has filed a lawsuit in New York federal courts against PoolTogether, a DeFi lottery protocol. Kent says he deposited $10 into PoolTogether in October and argues that PoolTogether does not qualify to give out lottery tickets under US law. Notably, anyone who purchases an illegal lottery ticket under New York law is allowed to bring a class-action lawsuit on behalf of themselves and other ticket holders (which could lead to $244 million in damages, according to the Wall Street Journal’s reporting).
In essence, the suit questions whether PoolTogether is autonomous and self-governed. However, in the Wall Street Journal, PoolTogether lawyer Kevin Broughel claimed that PoolTogether simply owns the front end with information on how to use the protocol and that the operations are governed by the original code, which POOL token holders now control. As the article states, “According to legal experts, Mr. Kent’s lawsuit could be among the first to squarely address the question of who is legally accountable when a DeFi application—known as a “protocol”—is at odds with the law or causes actionable harm to a user.”
Visa is partnering with Ethereum infrastructure firm ConsenSys to help traditional finance companies integrate central bank digital currencies. Explained Visa’s Head of CBDC Catherine Gu in a press release, “If successful, CBDC could expand access to financial services and make government disbursements more efficient, targeted, and secure – that’s an attractive proposition for policy makers.” The partnership could see Visa issue CBDC-linked payment cards using ConsenSys’s Quorum blockchain.
In related news, PayPal confirmed reports that it is exploring a US dollar-backed stablecoin solution of its own. “We are exploring a stablecoin; if and when we seek to move forward, we will, of course, work closely with relevant regulators,” PayPal’s Jose Fernandez da Ponte told Bloomberg.
Arbitrum, the largest Ethereum layer 2 solution by total value locked, went down for nearly 10 hours on Sunday. Offchain Labs, the developer behind Arbitrum, says a hardware issue that led to “Sequencer downtime” was the outage's root cause. A Sequencer is a node with special ordering powers that allow transactions on the chain to be finalized more quickly. For now, Offchain has control over the lone Arbitrum Sequencer. The team says it is looking into decentralizing Sequencer control in light of this event.
According to Arbitrum’s Twitter account, no funds were lost due to network downtime.
“Do you want to be part of the world’s first physical crypto island?” asks a male narrator to begin an eighteen-minute, thirty-five-second video promoting Cryptoland. After watching the full video, which is a cross between a metaverse hellscape and a cheesy infomercial, I, personally, would say the answer is a resounding no.
The idea is bold, and familiar if you have kept up with NFTs and DAOs recently. Cryptoland is attempting to purchase an island in Fiji through the sale of NFTs. After that, the details get sketchy. For one, it appears the island's acreage is smaller than the amount offered in the NFT sale. More humorously, basic questions like, “How would the island get plumbing?” were not particularly well covered.
If you're interested in learning more about crypto and Web3: