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What are we actually doing here?
“Uli doesn’t care about anything. He’s a nihilist. Ah, that must be tiresome.”
— Bunny Lebowski, The Big Lebowski
I’ve been thinking a lot about use cases, adoption of cryptocurrencies, and what we’re actually doing here.
Bitcoin is up 30% YTD, and yet it feels like we’re in a bear market. Every altcoin has collapsed under the weight of bloated high fdvs, low float startup strategies, and governance tokens that fail to pass on any store of value to holders due to the regulatory gray area we live in under the Biden administration.
With our industry in limbo with 1) no regulatory clarity, 2) TradFi and crypto constantly outbidding each other and no one really thinking about product/market fit, 3) the only thing to talk about this year is ETF adoption (which further distances buyers from owning blockchain assets themselves), and 4) literally no borrowing markets since the DCG/FTX/Silvergate/3AC collapse… it feels like we’re all lost at sea.
I entered the crypto world through the lens of a macro investor. It seemed to me that Bitcoin, along with public DeFi protocols, were solutions to many of the problems I had encountered in my investment journey. Simply put, markets had transformed from efficient capital allocation tools to debt refinancing tools through financial equality — like the Fed buying MBS during QE to stabilize markets by inflating home prices beyond the reach of many.
Like many, I believed in this premise during the last cycle and was excited by the idea that we were on the verge of a revolution that would reshape social incentives and solve many of the problems plaguing our modern financial world.
Instead, in this cycle we have only nihilistic memecoins that are endlessly pumped and dumped, inflated VC-backed governance coins with no equity tie-up, and ETFs – a Wall Street-approved speculative vehicle that removes holders from the real protocol innovations that excited us in the first place.
Excuse my French, but what the hell are we doing here?
I decided I needed to do some soul searching to reconnect with what got me into this industry in the first place.
First I read what Travis Kling discusses:
He expressed many of the nihilistic feelings that I and many others now experience, which he calls a general sense of quiet abandonment of the mission that brought us here.
He raises the point that some of this nihilism is not just our fault; it is a lack of regulatory clarity.
The lines between what is and isn’t allowed are being blurred by a politicized SEC that takes a scorched earth approach to regulation, resulting in no one wanting to create or experiment with anything of real value. The hope is that this upcoming election will bring a new wave of regulatory clarity that will allow our industry to innovate again.
Secondly, I tracked down Austin Campbell and interviewed him to discuss all things stablecoins, a space where I have found that there is significant positive progress.
The point is that traders have not had much opportunity to profit from taking an asset that is supposed to never change, so fewer people get emotionally excited about it without the corresponding PnL.
However, our conversation brought a wave of optimism and made me realize that things are moving in the right direction. There is hope.
These two thought experiments give me something to hold on to. I really think we are on the cusp of the next big phase of adoption and innovation; right now there are just some roadblocks leading to a dull market that is going nowhere.
I hope that the upcoming elections will resolve this. And so, at the same time, I will continue to believe in something, because without it we have nothing.
— Felix Joven
47%
According to a new report, the percentage of stablecoin users in Nigeria, India, Turkey, Indonesia and Brazil who said they primarily use the asset class to “save money in dollars.”
The researchers note that storing savings in a dollar-backed (theoretically) stable currency is becoming an increasingly common alternative to traditional bank accounts, especially in areas where access to banking services is difficult.
The survey, which involved nearly 2,500 people, was conducted by Castle Island Ventures, Artemis and Brevan Howard Digital.
SEC Reiterates ETH Is Not a Security
News broke this morning that the Securities and Exchange Commission (SEC) has reached a settlement with eToro after the trading platform allegedly violated securities laws by operating as an unregistered broker and clearing agency.
Under the agreement, eToro will pay $1.5 million and cease some of its cryptocurrency trading (giving customers 180 days to sell their holdings). US users will still be able to trade Bitcoin, Bitcoin Cash, and, most importantly, Ethereum.
eToro, without admitting or denying guilt, will remove all other crypto assets from its platform, all of which the SEC says are “investment contracts.”
Reading Between the Lines: SEC Makes It Clear That Ether No safety.
News of the eToro settlement comes a day after Prometheum, which is licensed only to store cryptocurrencies, launched its institutional platform. Prometheum provides custody services for optimism (OP), chart (GRT), uniswap (UNI), arbitrage (ARB), and ETH.
I asked the Prometheum Capital team what they thought about the eToro agreement and the SEC’s apparent statement that Ether is not a security. Here’s what CEO Benjamin Kaplan had to say:
“The eToro settlement is another clear example of the transition that is underway in the United States to streamline digital asset trading under federal securities laws. We are confident that federal securities laws apply to oversight of the custody and trading of ETH.”
We’ll have to wait and see if Prometheum makes any changes to its current list of acceptable cryptocurrency securities, but don’t hold your breath.
— Casey Wagner
XRP ETF? Don’t Get Ahead of Yourself
Grayscale Investments has been actively developing its cryptocurrency fund offerings this year, and has also converted two of them into ETFs.
The investment firm added the XRP Trust on Thursday, giving investors access to a protocol with an “important real-world use case,” Rayhane Sharif-Askari, Grayscale’s head of product and research, said in a statement.
“By facilitating cross-border payments that take just seconds, XRP has the potential to transform traditional financial infrastructure,” she added.
Media reports and X reports have noted that this trust is paving the way for a possible XRP ETF. While these statements are not in themselves incorrect, I think it is important to note that this can be said of all 20+ Grayscale trusts.
“Each product must follow a four-stage life cycle — with the ultimate goal of the product being included in an ETF,” Grayscale notes on its website. “As a product moves through this intended life cycle, there is a correlated increase in investor access and transparency.”
So issuers can apply for a Solana ETF, and Grayscale can launch this XRP Trust, which starts a process that could lead to a conversion in the future. But ultimately the SEC would have to approve them (as part of Phase 4), which has historically been a big hurdle.
Nate Geraci, president of The ETF Store, told Blockworks that he still believes that the launch of more spot crypto ETFs (beyond BTC and ETH) will require one of two things: futures on the asset listed on a CFTC-regulated venue, or Congress implementing a framework that clearly defines which crypto assets are securities and which are commodities.
“Obviously, neither of these things will happen overnight,” he said. “In the case of listed futures, history shows that additional parameters will still need to be tested, including that these contracts will need to develop a trading history, and then issuers will need to launch ETFs based on the futures.”
Geraci and others note that the upcoming election and a potentially friendlier administration (perhaps if Trump wins) remain the “biggest hurdle” to speeding up the approval timeline for more spot crypto ETFs.
So feel free to be optimistic. But it’s important to know the context.
— Ben Strack
Bulletin board
- House Republicans have launched an investigation into SEC Chairman Gary Gensler’s hiring practices, which lawmakers say are unlawfully based on political affiliation. Reps. Jim Jordan, James Comer, and Patrick McHenry (who is not seeking reelection after his term ends this year) allege that under Gensler’s leadership, the SEC hired “individuals from left-leaning organizations to senior positions.”
- Nearly two-thirds of 3,600 consumers in the US, UK and Europe surveyed by Deutsche Bank earlier this year said cryptocurrencies could replace cash.
- Want to hear some hot takes on the TradFi/crypto divide? Tune in to the latest episode of the On the Margin podcast here or wherever you get your podcasts.
