Many crypto investors, when they are choosing which coins to buy, might consider any of the following factors to be positive signs: 1) venture investment by Andreessen Horowitz, 2) VC backing by Coinbase Ventures, or 3) a listing on Coinbase.
This is why Faisal Khan, author of the Startups and Econ newsletter, surprised the crypto community last week with his analysis that venture-backed tokens that get listed on Coinbase actually perform worse than such coins that don't get listed on Coinbase and worse than coins that don't have such backing.
On this Friday's Unchained, he talks about his analysis and explains his theories about what is actually going on. Be sure to check out the show to learn more about these counterintuitive findings.
And now, here's some of the top crypto stories from this week, which was busy with all kinds of news.
The Federal Reserve released its long-anticipated white paper on central bank digital currencies on Thursday explaining the Fed’s current views, plus requesting feedback on questions regarding the privacy, financial stability, and usage of a potential CBDC.
Credit: kertlis
The Fed did not commit to issuing a CBDC or digital dollar. “The Federal Reserve would only pursue a CBDC in the context of broad public and cross-governmental support,” wrote the Fed, adding, “The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.”
Interestingly, the paper did discuss what a potential CBDC would look like: “a potential U.S. CBDC, if one were created, would best serve the needs of the United States by being privacy-protected, intermediated, widely transferable, and identity-verified.” Notably, the Fed’s definition did not mention either crypto or distributed ledger technology in its definition of a CBDC. In fact, in the 40-page report about issuing a CBDC, the Fed only mentioned crypto 13 times (and stablecoins 17).
When it did discuss crypto, the analysis was biting. “Cryptocurrencies have not been widely adopted as a means of payment in the United States. They remain subject to extreme price volatility, are difficult to use without service providers, and have severe limitations on transaction throughput. Many cryptocurrencies also come with a significant energy footprint and make consumers vulnerable to loss, theft, and fraud.” The Fed was also tough on stablecoins, calling for Congress to “promptly” enact legislation.
In related news, on Wednesday, two FDIC-insured banks, NBH Bank and New York Community Bank conducted the first USDF transaction. USDF is a stablecoin created by a group of FDIC-insured banks in the US, including Synovus, New York Community Bank, and Sterling National Bank, the 48th-, 45th-, and 77th-largest banks in the US by assets. The stablecoin operates on the Provenance blockchain and is redeemable for cash at a 1:1 ratio at any of the member groups.
As of now, the FDIC has not confirmed whether USDF would qualify for pass-through insurance, which would protect holders against losses up to $250,000.
REvil hacking group member Dmitry Korotayev as he appears at Moscow's Tverskoi District Court charged with dealing with counterfeit payment documents. (Photo by Tverskoi District Court\TASS via Getty Images)
Authorities in Russia announced the dismantling of REvil, the ransomware crime group, this week. The Federal Security Service, Russia’s top domestic intelligence agency, successfully raided 25 residences tied to REvil, arresting the person the US government says was behind the Colonial Pipeline attack, and seized roughly $6.8 million in currency – including crypto, according to a press release. The FSB said its actions came at the “appeal” of US authorities.
In November, CNN reported that Attorney General Merrick Garland estimated that REvil ransomware had been deployed in an estimated 175,000 computers worldwide and caused at least $200 million in ransom payments to be made. Of that $200 million, at least $15 million in ransom payments has been confirmed to be received via Bitcoin after REvil’s successful attacks on Colonial Pipeline (which paid out roughly $4.4 million) and the meatpacker JBS (which paid out $11 million).
In related news, Russia’s central bank believes that the country should ban cryptocurrency-related activities, according to a report presented by the director of the Bank of Russia's Financial Stability Department on Thursday. It suggests that an optimal solution for Russia would be to ban crypto mining and that new laws and regulations are needed to shut down crypto-related activities. Interestingly, the report did not suggest banning ownership of crypto.
Eduardo Paes, the mayor of Rio de Janeiro, announced last week that the city plans to convert part of its treasury into crypto. “We are going to launch Crypto Rio and invest 1% of the Treasury in cryptocurrency,” said Paes at Rio Innovation Week. Rio de Janeiro also has plans to offer tax breaks for citizens who pay in crypto. “We are studying the possibility of paying taxes with an additional discount if you pay with bitcoins. You take the discount of the single quota of 7% (of the IPTU [local property tax]), it becomes 10% if you pay in bitcoin,” explained Rio de Janeiro’s Finance Secretary Pedro Paulo.
In related news, El Salvador is coming under fire from Moody’s Investor Service for doing what Miami and Rio de Janeiro aspire to do – buy Bitcoin. According to Bloomberg, El Salvador’s Bitcoin trades, which seem to come directly from President Nayib Bukele’s personal device, appear to be down roughly 14% based on the timing of Bukele’s purchase announcements.
An analyst for Moody’s described El Salvador’s BTC trading to Bloomberg as “quite risky, particularly for a government that has been struggling with liquidity pressures in the past.” The analyst also noted that El Salvador’s holdings of 1,139 BTC does not pose a significant threat to its debt obligations. However, increased buying could induce “greater risk” to repayment capacity, remarked the analyst. Notably, El Salvador faces an $800 million bond that matures in January 2023. Moody’s already downgraded El Salvador to a rating of Caa1, which judges El Salvador’s bond to be a “very high credit risk.”
When Investing.com posted on Twitter that Moody had downgraded El Salvador’s debt due to Bitcoin trades, Nayib Bukele, president of El Salvador, replied, “BREAKING: EL SALVADOR DGAF.”
Ripple won a battle against the Securities and Exchange Commission last week when a federal judge granted them access to emails regarding former SEC director of corporation finance Willliam Hinman’s 2018 speech, in which he said, “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."
Credit: NurPhoto/Contributor
With the decision, the SEC cannot claim that emails about Hinman’s speech are privileged – meaning Ripple will have access to communications from Valerie Szczepanik, the SEC’s crypto czar, and other regulators discussing the wording of the speech.
Notably, the federal judge’s reasoning was that she felt the speech concerned Hinman’s personal views rather than SEC policy. “Although Hinman and the SEC admit that agency staff discussed his speech, it appears that this speech was 'merely peripheral to actual policy formation,’ … and not an 'essential link' in the SEC’s deliberative process with respect to Ether… Accordingly, emails concerning the speech or draft versions are neither predecisional nor deliberative agency documents entitled to protection."
Speaking of regulation, per Bloomberg, SEC chair Gary Gensler said this week that crypto exchanges should expect stricter scrutiny in 2022. "I've asked staff to look at every way to get these platforms inside the investor protection remit. If the trading platforms don't come into the regulated space, it'd be another year of the public being vulnerable," the SEC chair reportedly said in a virtual conference on Wednesday.
OHM, the native token of Olympus DAO, crashed to an all-time low of $98.35 Monday, marking a 91% decline from its all-time high in April 2021. According to DeFi Llama, OlympusDAO’s total value locked has also plunged by over $1 billion since December 1.
Olympus DAO is a decentralized reserve currency protocol. Each OHM token is backed by a basket of assets, like DAI or FRAX, in the Olympus treasury – giving each token a baseline value below which it should not fall. Essentially, the purpose of OHM is to act as a store of value not tied to the USD.
OHM tokens are generated when users bond other cryptos, such as DAI, FRAX, or WBTC, to the Olympus DAO treasury. This allows Olympus DAO to own its liquidity. Olympus DAO also allows OHM holders to stake OHM tokens in return for more OHM tokens. OHM has often traded far above the treasury of Olympus DAO, allowing for Olympus DAO to print more OHM via staking rewards (aka high APY) to dilute the value of OHM back to the value of its treasury. This has created a virtuous cycle in the past, as users stake OHM to earn more OHM, which they then stake again.
However, when users stop staking their OHM and cash out, the price of OHM can be wiped out quickly – as happened Sunday night, according to crypto reporter Colin Wu:
Etherscan shows a SushiSwap transaction in which roughly $10 million in OHM was traded for DAI causing 25% slippage on OHM trades and over $5 million in liquidations. Since the initial sell-off, OHM has yet to recover, with the token price sitting under $120 Thursday morning, down 46% from 7 days before.
On Monday, the crypto exchange Crypto.com (disclosure: a sponsor of my shows) announced on Twitter that it would be suspending withdrawals from the platform after receiving multiple reports of suspicious activity. Several hours later, the firm requested users sign back in and reset their two-factor authentication.
On Thursday, in a post-mortem, Crypto.com confirmed the suspicions of on-chain analysts by revealing that 483 customers lost 4,836.26 ETH and 444.93 BTC, totaling roughly $34 million. The exchange says the hack occurred when transactions were approved without 2FA being input by users. Crypto.com says that no customers lost funds, as most unauthorized transactions were prevented by the exchange, and other customers were fully reimbursed.
Going forward, Crypto.com is introducing a security program for qualified exchange users that restores up to $250,000 in stolen or lost funds due to a third-party accessing the account.
Based on a CNBC report, it appears that Walmart is ready to join the metaverse. Trademark filings from late December show that Walmart is preparing to make and sell virtual goods and mint virtual currencies, including NFTs. CNBC reports that Walmart filed seven trademark applications.
However, in a statement, Walmart hedged against saying it will actually be using the technology. “We are testing new ideas all the time,” the company said. “Some ideas become products or services that make it to customers. And some we test, iterate, and learn from,” concluded Walmart.
The news comes roughly six months after Walmart posted a job on LinkedIn looking for a “visionary leader” to develop a digital currency strategy.
The Financial Times, citing several people familiar with the matter, reports that Meta (for which, disclosure, I write a Bulletin newsletter), is drawing up plans to allow users to create and display NFTs on their Facebook and Instagram profiles. In addition, Meta is looking into building an NFT marketplace. Novi, Meta’s crypto wallet, could play a key role in its push into NFTs – however, as of now, plans are still in the early stage.
Speaking of NFT integrations, Twitter Blue, the paywalled version of the social network, announced the launch of NFT profile pictures on iOS – where users can show off their expensive JPEGs to the world.
Fun Bits
SpiceDAO, an investment DAO that crowdfunded ~$3 million to purchase a rare copy of a proposed adaption of the famous sci-fi novel Dune in November. This week, the DAO tweeting their plans for their book, which included “produce an animated series based on it” and “support community projects.”
I guess no one told them that buying a copy of a book does not give them the copyright to it.
“I have genuinely spent 10 minutes starting at this but, no, it really DOES appear to be true that a bunch of cryptobros just spent €2.6 MILLION - 100x the asking price - for a book at auction in the mistaken belief that they would therefore own the copyright in it,” wrote Gary Brannan on Twitter.
If you're interested in learning more about crypto and Web3:
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and/or buy my forthcoming book, which is all about Ethereum and the 2017 ICO craze, The Cryptopians: Idealism, Greed, Lies, and the Making of the First Big Cryptocurrency Craze
