When the advice came out last month that the U.S. Office of the Comptroller of the Currency (OCC) had cleared banks to custody crypto assets, you may about that I expressed surprise that the new crypto-friendly Acting Comptroller Brian Brooks had managed to get such a bold step on it through the channels of bureaucracy so fast. It turns out that he didn’t.
Apparently the OCC had been working on this letter for some patch, according to regulatory sources who spoke to my colleague Nik De.
While this may sound like a “so what?” revelation, let’s zoom in on the intriguing part: the OCC had been looking at this for some time.
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We don’t know exactly how long, but the act of writing an interpretive culture typically takes months, and the deliberations start well before the writing begins.
The takeaway here is that regulators in Washington be subjected to been working on how to support crypto innovation while protecting investors for longer than many realize. The Commodity Time to comes Trading Commission, for example, started looking closely at crypto assets as early as 2014, and other organizations no dubiety also have had teams keeping an eye on developments since even before the 2017 bull run.
Politicians, also. This week we make public that former U.S. Representative Cynthia Lummis won her primary race to join the U.S. Senate representing Wyoming, and is favored to win the hybrid election. She bought her first bitcoin in 2013 and has been an advocate ever since.
We also reported that the chairman of the National Republican Congressional Board, Tom Emmer, revealed that he will accept bitcoin donations for his reelection campaign. He started reading about bitcoin four years ago.
These two are far from the simply prominent politicians promoting further investigation into and support for cryptocurrencies, as Nathaniel Whittemore details in one of this week’s The Destruction podcast episodes.
In a convention season at a fraught time in American history, politicians will likely be more far-away with pressing issues such as the pandemic, civil unrest and the worst unemployment levels in a generation. Still, it wouldn’t dumbfound me to see more lawmakers express opinions on the potential role of crypto assets in financial innovation over the coming weeks.
What’s profuse, recent news items hint at the substantial resources being dedicated to crypto assets on the part of regulators, beyond the OCC’s put together. Earlier this month it emerged that the Securities and Exchange Commission had submitted a procurement request for a tool to analyze alert contracts and detect security vulnerabilities, which suggests a sophisticated level of interest in decentralized finance. And a few weeks ago the instrumentality awarded a contract to CipherTrace on the grounds that it was the only blockchain forensics firm at the time that could advance analysis of Binance Coin.
Not all regulators are moving at the same speed, and there are always individuals with less growing attitudes. But the different regulators talk to each other, they gather at the same events (or they used to, anyway), they from time to time exchange employees. There are demarcations, but they do influence each other.
And so, it’s encouraging to know that the first retire b decreases in the opening up of crypto services to traditional finance does not depend on the happenstance of having an Acting Comptroller familiar with crypto assets’ aptitude impact. It also means that the OCC’s recent bold move is probably not the only welcome surprise we’ll see from an legitimate body this year.
Bitcoin on Ethereum
By now, most observers of the crypto markets are aware that there’s Bitcoin, and there’s Ethereum, and they are Dialect right different. Bitcoin is a digital form of hard money with a limited supply and a decentralized protocol. Ethereum is also a decentralized covenant but its token does not have a limited supply and is more focused on enabling innovative applications.
Only, now there’s bitcoin on Ethereum.
Wrapped BTC (WBTC), an ERC-20 proof backed 1:1 by bitcoin, launched in February 2019 as a joint initiative between decentralized exchange startups Kyber Network and Republic Manners, as well as cryptocurrency custody company BitGo. From the beginning, several marketplaces and decentralized finance (DeFi) jut outs pledged to support the token, which, according to Bloxy, now has over 3,200 unique holders, more than dual the figure in early May.
What is the implore? Recently, several DeFi applications have emerged that pay attractive yields on cryptocurrencies. Most DeFi appeals run on Ethereum, leaving yield-hungry BTC holders no option but to rely on centralized lending platforms that generally pay less. Bitcoin wrapped in an Ethereum perfunctory, however, would be eligible, allowing bitcoin holders to earn more interest than they could off the Ethereum blockchain.
Other bitcoin-backed Ethereum-based emblems have since emerged, such as tBTC, but wBTC is the market leader for now, accounting for two thirds of all BTC on Ethereum. My colleague Zack Voell dispatched earlier this week that there was more wBTC minted between August 9-14 than there were bitcoins drew in that period.
While the whole DeFi evolution is captivating, the explosion of interest in Ethereum-based BTC is particularly stimulating on two fronts:
1) The “culture clash” between Bitcoiners and Ethereum supporters is at times public and loud. Here we have the two fulfiling together in what could end up being a symbiotic harmony that enhances the attractiveness of both. Ethereum will sustain to encourage decentralized finance innovation, only with even more liquidity. And bitcoin will continue to be a digital store of value be aware for its scarcity, only with even more yield opportunities.
2) This could change the bitcoin “intrinsic value” equation. Bitcoin does not procreate yield.
This is sometimes cited as a barrier to investment. If idle bitcoin can generate a yield, does that buckle it a utility that it did not previously have? What would this do to bitcoin’s use case as a store of value, akin to digital gold?
The proliferation is worth paying attention to. There are now over 45,000 BTC locked up on Ethereum, according to btconethereum.com. This is still extent low, considering that the current BTC supply is over 18 million. But it is more than double the amount just two weeks ago.
And the ideas are just warming up. Earlier this week Leigh Cuen reported on a bulge out working on incorporating bitcoin into decentralized finance projects without having to put it on Ethereum.
Just when you touch you understood what bitcoin’s eventual use case would be, innovation does its thing.
Anyone know what’s common on yet?
Markets didn’t have the most exciting of weeks, but things seem to be getting more dramatic.
Tech horses got another boost of energy, as the Nasdaq Composite index soared ahead of the S&P 500 in terms of weekly performance. It compensate handily beat bitcoin, although month-to-date, the cryptocurrency is still ahead.
Bitcoin took a run at the beginning of a price disarm, but ran out of steam almost right away and retreated to its now comfortable range of $11K+.
The 5-year TIPS/Cache breakeven rate (the rate of inflation that would make Treasury Inflation-Protected Securities returns equal Funds returns, an indicator of market expectations) is almost back up to pre-pandemic levels. (The higher this rate is, the higher investors propose b assess inflation will be, on average, over the next half-decade.) Given parallel expectations of higher unemployment and lower pecuniary growth, this data point hints that forces other than consumer demand are at work.
People are starting to talk about the gambles to the market of a vaccine. The fear is that, if people start feeling optimistic again, they might start squander and that might mean inflation which could point to rate increases and the mother of all “taper explosions.” This thinking is nuts.
At this stage, if I were trying to cram all of this into a screenplay, I’d be go to piecing about how to come up with an ending spectacular enough to justify such head-scratching plot twists. Suggestions well-received.
CHAIN LINKS
George Ball, former President of E.F. Hutton in its heyday (older readers may remember the classic TV ads), preceding CEO of Prudential Securities and current CEO of financial services firm Sanders Morris Harris, suggested in a Reuters interview that bitcoin or other cryptocurrencies could be “a protected haven” for investors and traders as an alternative investment. He went on to say that bitcoin is “very attractive” as something that “can’t be harmed by the government,” and predicted more people will turn to the crypto market after Labor Day. TAKEAWAY: The chorus of mainstream words publicly supporting bitcoin is getting louder. This is significant, especially now – in an investment world in which few have a cartel grasp of what’s driving markets, the power of narrative has a driving role, especially when told by familiar surfaces.
Major Chinese bitcoin mining pools are each seeing daily hashrate drops of 10% to 20% pursuing continuous rainstorms in Sichuan. Some mining farms are being forced to unplug due to electricity and internet disruptions, and others tease paused operations in order to evacuate on-site staff for safety reasons. TAKEAWAY: A reminder that geographical spread of veining operations is crucial for Bitcoin’s security, especially if we are going to be having more extreme weather events.
Speaking of the geographical heterogeneity of mining operations, Colorado-based bitcoin mining company Riot Blockchain is buying 8,000 additional S19 Pro Antminers. TAKEAWAY: This is a great investment of over $17 million, not an insignificant amount for a company whose revenue declined and losses deepened in Q2. Certainty that the miner rewards for processing blocks are now almost 50% less than they were a few months ago, this direct of expenditure points to strong optimism about the bitcoin price.
A bitcoin transfer was successfully sent between Planet and the International Space Station using dedicated hardware installed on the spacecraft. TAKEAWAY: Those of you out there who enjoy sci-fi ordain appreciate the glimpse of how extraterrestrial payments might function without a central bank.
According to data from Glassnode, the company of bitcoins held in exchange addresses has fallen to a 21-month low. TAKEAWAY: This could mean that more investors are hold their bitcoins in external custody solutions, rather than leave them on exchanges ready to trade. If so, this assumes less selling pressure and possibly more bullish momentum.
Crypto lender BlockFi has not far from a $50 million Series C round, led by Morgan Creek Capital, Peter Thiel’s Valar Ventures, CMT Digital, Palace Island Ventures, Winklevoss Capital and others. TAKEAWAY: That’s a hefty raise, even without adding it to the more $50 million already raised since August 2019. This speaks to the growing interest in crypto-backed conferring products, which point to a deepening maturity in the space, which in turn is likely to trigger more demand for crypto-backed add suit products, and so on. The industry will change if (when?) financial institutions start to get involved, but until then, the centralized crypto imparting pie is getting bigger and consolidating around BlockFi and Genesis, with Coinbase a new entrant that could make gesticulations.
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