| Market Reports

The Weekly Hash – December 2 – 6

Check out this week’s events in the world of crypto, brought to you by the experts at Kraken.

This digest is prepared for informative purposes only and does not represent an investment recommendation or investment advice. Please see our full disclaimer at the bottom for more information.

See below all the important happenings this week in the world of crypto, presented by the experts at Kraken: 

  1. U.S. DOJ: Manhattan U.S. Attorney Announces Arrest Of United States Citizen For Assisting North Korea In Evading Sanctions
    • Ethereum developer Virgil Griffith was arrested for allegedly traveling to North Korea to give a presentation and technical advice on using crypto/blockchain to launder money and evade sanctions
    • U.S. Attorney Geoffrey S. Berman stated,  “As alleged, Virgil Griffith provided highly technical information to North Korea, knowing that this information could be used to help North Korea launder money and evade sanctions.  In allegedly doing so, Griffith jeopardized the sanctions that both Congress and the president have enacted to place maximum pressure on North Korea’s dangerous regime”
    • Assistant Attorney General John Demers said,  “Despite receiving warnings not to go, Griffith allegedly traveled to one of the United States’ foremost adversaries, North Korea, where he taught his audience how to use blockchain technology to evade sanctions.  By this complaint, we begin the process of seeking justice for such conduct”
    • FBI Assistant Director-in-Charge William F. Sweeney Jr. added,  “There are deliberate reasons sanctions have been levied on North Korea.  The country and its leader pose a literal threat to our national security and that of our allies.  Mr. Griffith allegedly traveled to North Korea without permission from the federal government, and with knowledge what he was doing was against the law.  We cannot allow anyone to evade sanctions, because the consequences of North Korea obtaining funding, technology, and information to further its desire to build nuclear weapons put the world at risk.  It’s even more egregious that a U.S. citizen allegedly chose to aid our adversary”
    • The Ethereum Foundation commented, “We can confirm that the Foundation was not represented in any capacity at the events outlined in the Justice Department’s filing, and that the Foundation neither approved nor supported any such travel, which was a personal matter”
    • If proven guilty of violating the International Emergency Economic Powers Act, Griffith can serve a maximum term of 20yrs in prison
    • Coverage by CoinDesk
  2. Softbank: SBC Wallet Cards Now Issued by Softbank
    • On Nov. 27 Softbank will launch its SBC Wallet Cards (Softbank Card 3.0), a debit card with a built-in crypto wallet that allows users to switch between fiat and digital currency and view their balances in real-time (on the physical card)
    • The card utilizes its own encryption system, realizes multiple encryption mechanisms and can realize hot and cold wallet functions
    • The card is exclusively available in Japan and will come to market in the U.S., Southeast Asia, South Korea and Dubai in the future
    • Softbank SBC Project Leader added, ”We are not doing simple cards, but are creating a flexible and faster life of the application scene and the future of payment integration. The SBC we built does not close to other encryption cards. You’ll know the black technology only after you used it” 
  3. Geneva-Legal Lawyer Fatemeh Fannizadeh: Libra Association Makes Significant Changes to its Articles of Association
    • The Libra Association recently made significant changes to its Articles of Association (AoA) without a public announcement, including changing it’s mission from “empowering billions of people through a new global currency and financial ecosystem“ to “working with multilateral organizations, the private sector, regulators and communities around the world to create a lower cost, more accessible payment tool built on the Libra Blockchain that will facilitate a more connected global payment system, providing financial or other services to those most in need of such services”
    • Members previously weren’t allowed to transfer membership unless it was within a group of companies, while the new AoA sets processes to be followed in case of transfer
    • Termination of Membership can now happen at any time, given 30 days’ notice unless it is for cause, which would allow a member to be terminated at any time without advance notice
    • The new AoA removed the right of the Council to introduce a membership fee or other contributions to be paid by members to the association; membership is now free
    • The “Libra Association Guiding Principles,” which include Incentives Distribution Policy, Open Source Contribution Policy, Reserve Management Policy, Regulatory Policy, Technical Governance and Open Source Governance Policy, Trademark Policy, and Validator Requirements Policy, can now be issued and amended by the Council
    • While the old AoA didn’t make any mention about subsidiaries, it now specifies that the board can form and operate subsidiaries of the association
    • The board can also “propose to the Council for approval the timing and structure of fundraising proposals and to implement any approved fundraising transactions, including cancellation of any such fundraising transaction” (e.g., ICO)
    • Regarding the process leading to the dissolution of the association and the faith of the “interests in any of the Association’s subsidiaries that will hold the cash reserve accounts,” the association can disappear but the reserves won’t be liquidated
    • Access the old & new AoA by clicking here and following the steps attached in the picture below
  4. The Block: Top Crypto Investors Overwhelmingly Invest in Trading Services and Exchanges
    • Looking at the top-10 most active crypto funds in 2019, trading services and regional exchanges in South America, Europe, and the Middle East are among the most popular investment categories, “Outside of trading services/exchanges, investments into wallets and open finance on-ramps, and game studios leveraging blockchain were the next-most popular categories”
    • With the exception of Galaxy Digital, all major investors have stakes in this category, especially Polychain, which has +60% of its investment in trading services and exchanges
  5. The Block: South Africa Plans New Rules to Stop Crypto From Being Used to Evade Currency Controls
    • The South African Reserve Bank (SARB), the country’s central bank, plans to introduce new rules to stop crypto from being used to evade currency controls by 1Q2020
    • The central bank would further restrict how much local currency (rand) can be sent outside South Africa, which is currently limited to a total of 11M rand (~$750,570)
    • Local South African banks have ostensibly started clamping down on crypto firms; two weeks ago South Africa’s First National Bank said it will stop serving crypto exchanges, including Luno, ICE3X, and VALR
  6. Galaxy Digital: Galaxy Digital Announces Third Quarter 2019 Financial Results and Provides Corporate Updates
    • Galaxy Digital reported $58.4M net income in the first 3 quarters of 2019, a growth of +133% from the same period last year
    • The firm reported a net loss of -$68.2M in 3Q, which can largely be explained by the firm’s -$43.3M loss in OTC  operations
    • The trading arm saw a +47% increase QoQ in total onboarded counterparties 
    • Galaxy Digital’s asset management arm had a total of $336M AUM by Sept. 2019, $325M of which was for the EOS Fund
    • As of Sept. 30th, the firm’s investments fell -$22.9M to $156.5M and saw digital asset holding increase +$63.7M to $133.5M over the prior nine months
  7. CoinDesk: Ex-CFTC Chair Giancarlo to Push for Digital Dollar in New Role at White-Shoe Law Firm
    • Former CFTC Chair Chris Giancarlo (AKA “Crypto Dad”) joined Willkie Farr & Gallagher law firm as senior counsel where he will work on public policy positions, including advocating for the creation of a blockchain-based digital dollar, in addition to working with the firm’s clients, “After five years in public service at the U.S. Commodity Futures Trading Commission, I want to continue to help build the digital financial markets of the future […] While assisting Willkie clients in their worldwide commercial ventures, I will further focus on key issues of public policy through writing and personal service on both public and private boards”
    • Giancarlo will also advocate for the development of an American replacement to the London Inter-bank Offered Rate (LIBOR), an interest-rate average calculated from estimates submitted by the leading banks in London
    • He added, ”I expect soon to announce additional leadership roles in enterprises engaged in financial trading markets and digital commerce” 
  8. SEC: Kristina Littman Named Chief of the Cyber Unit
    • Kristina Littman has succeeded Robert Cohen as Chief of the SEC’s Cyber Unit, “a national, specialized unit that focuses on protecting investors and markets from cyber-related misconduct”
    • Joining the SEC in 2010 as a staff attorney, Littman worked her way up the ranks to become Senior Advisor to SEC Chair Jay Clayton in Aug. 2017, advising on matters involving the Division of Enforcement and Commission adjudications, as well as regulatory and policy matters relating to digital assets, int’l affairs, trading and markets, and investment management
    • Co-Director of the SEC’s Division of Enforcement Steven Peikin added, “Kristy’s diversity of experience in the Commission – as an investigator, a trial lawyer, and a senior advisor – have prepared her well to lead the Cyber Unit”
  9. CoinDesk: Ethereum Developer Virgil Griffith to Be Released From Jail Pending Trial
    • Ethereum developer Virgil Griffith, who was recently arrested on charges of conspiracy to assist North Korea in learning more about crypto to launder money and evade sanctions, had a preliminary court hearing yesterday where the judge ruled that the DOJ has enough evidence to move a case to trial; Griffith will now be released from jail after bond is posted, which “usually takes a few weeks”
    • Brian Klein of Baker Marquart, who is representing Griffith, said, ”We are very pleased that today the judge found that Virgil should be released from jail pending trial. We dispute the untested allegations in the criminal complaint. Virgil looks forward to his day in court, when the full story can come out”
  10. Bloomberg: Nordea Wins Danish Court Battle to Ban Staff Trading in Bitcoin
    • Denmark’s union for financial industry employees filed a lawsuit against Nordea Bank for banning its employees from investing in crypto on their own time, saying the ban interfered with employees’ personal lives; however, a Danish court ruled that the risks associated with crypto justify the restriction
    • The bank told staff that “the risks were too high” because the crypto market isn’t regulated and had been linked to criminal activity, including money laundering, adding that employees might damage the reputations of Nordea and its customers
    • The restriction didn’t cover financial instruments tied to crypto that Nordea had sold to clients, nor did it apply to any crypto that employees might have owned before the ban
    • The union’s chairman Kent Petersen said, “We filed suit because of the principle that everyone obviously has a private life and the right to act as a private individual. It was important for us and our members to establish what rights managers have. In this case, it was more far-reaching than what we find to be appropriate”
  11. RhythmTrader: More Than 60% of Circulating BTC Supply Hasn’t Moved Since 2018
    • According to data from Bitinfo.charts, ~11.58M BTC (~64%) of the ~18.08M circulating BTC supply has stayed in the same wallet since 2018
    • Notably, BTC’s price fluctuated between ~$3,100 and ~$13,800 within the same timeframe
  12. Reuters: WisdomTree Launches its First Bitcoin Exchange-Traded Product
    • WisdomTree Investments, a traditional asset manager with +$60B AUM, launched a physically-backed BTC ETP on Swiss stock exchange SIX to offer large investors exposure to BTC without the need to directly hold the asset
    • WisdomTree Head of Europe Alexis Marinof said “digital assets, like Bitcoin, are not a passing trend and can play a role in portfolios”
    • The firm said the ETP will offer more liquid and transparent BTC trading, adding that its format will circumvent the need for investors to store private keys
    • The product’s underlying BTC will be held in cold storage by Swissquote bank
    • WisdomTree Europe’s Head of Capital Markets Jason Guthrie said the product would be popular with long-term investors who may find futures difficult to trade and manage, “There is a demand for things in an exchange-traded format. There are plenty of clients that either can’t trade futures, or find a physically-backed exchange traded product to be operationally more efficient”
  13. CoinDesk: Georgia Governor Appoints Bakkt CEO Loeffler as New US Senator
    • Georgia Governor Brian Kemp appointed Bakkt CEO Kelly Loeffler to the U.S. Senate where she will fill current Senator Johnny Isakson’s seat starting Jan. 1, 2020
    • While Loeffler said she was “pro-Trump”, in favor of border security, the Second Amendment, pro-life, and not in favor of socialism, she didn’t address crypto in her introductory remarks
    • It’s unclear who will take Loeffler’s position at Bakkt come January, however some speculate that current COO Adam White would be a natural successor to the role
  14. CoinDesk: State Street Slashes DLT Developer Team as Bank Rethinks Blockchain Strategy
    • Global custodian bank State Street reportedly fired +100 blockchain developers as the firm decided to pivot from a focus on DLT to focus more on digital assets; a person familiar with the matter said there are now “only a few token people left” from the team, “They are moving away from this giant in-house DLT initiative […] They are more focused on digital assets, stablecoins, custody, and the USC initiative [the Utility Settlement Coin being developed by bank consortium Fnality]”
    • State Street’s DLT team ran into an “innovator’s dilemma” and decided it would be more efficient to take a “ledger-agnostic” approach and rely on third-party providers rather than build an in-house DLT solution
    • Ralph Achkar, managing director of digital products at State Street in London, said streamlining shouldn’t be taken to mean “we are not focused on distributed ledger. That is absolutely not the case […] If something is Fabric-related we still have some Fabric engineers on board […] I think the choice in approaching that space was, do we need to have all of these resources internally, or can we actually build partnerships and work with other providers in the market?”
  15. Kursiv: Kazakhstan Won’t Tax Cryptocurrency Mining
    • Madi Saken, legislative analyst at the National Association for the Development of the Blockchain and the Industry of Data Centers of Kazakhstan (NABDC), announced the finalization of a draft law that would allow crypto mining to go untaxed until the mined crypto is exchanged for fiat, “Mining will not be an entrepreneurial activity, but a purely technological process. Digital assets, cryptocurrencies will not be subject to taxation. Because tax liabilities arise when real money income appears, namely when the cryptocurrency was exchanged for real money, that is, it was sold on the exchange. And then directly this income in classical money will be directly subject to taxation”
    • Under the bill, Mining will still be recognized as entrepreneurial activity in the event that a person provides services for the provision and use of computing resources for mining, and mining farms would be taxed by analogy with typical data centers
    • The draft law is under consideration by the presidential administration and will be sent to the Mazhilis later this month
  16. Decrypt: France to Experiment With Digital Euro in 2020
    • French central bank governor François Villeroy de Galha said he wants France to be the first country to issue a central bank digital currency (CBDC), ”We intend to start experimenting quickly and launch a call for projects (for private sector players) by the end of the first quarter of 2020″
    • Villeroy said the digital euro will initially be used between banks and that a digital currency for retail customers would “be subject to special vigilance […] Thresholds on the amounts of anonymous transactions, as is already done in France for payments in electronic money or cash, could be introduced for this purpose”
    • The governor noted that the three advantages to building a digital euro include: guarantee customer access to central bank money (where cash is losing ground), improved efficiency in settlement and post-market activities, and help in maintaining sovereignty of central banks in light of rivals like Facebook’s Libra
  17. Reuters: Update 1-Ping An’s OneConnect Launches Up to $504mln U.S. IPO in Down Round
    • OneConnect Financial Technology, the blockchain and AI arm of one of China’s biggest insurers Ping An Insurance, launched a U.S. IPO of up to $504M, bringing the firm’s valuation to $4.5B-$5.5B; this figure marks a sharp drop from its $7.5B valuation in Feb. 2018 when it raised $650M from investors, such as SoftBank and SBI Group
    • The firm initially planned to raise $1B in Hong Kong, but decided to change the listing venue to circumvent market instability in Hong Kong
    • OneConnect is selling 36M shares (ADS) between $12-$14 each with trading scheduled for Dec. 13th on the NYSE under the symbol “OCTF”
  18. Kraken: Kraken Now Supports the Swiss franc (CHF)!
    • Kraken partnered with Liechtenstein-based Bank Frick to add CHF support, starting with BTC & ETH pairs and potentially expanding to additional pairings in the future
    • The minimum & maximum deposit/withdrawal limits are 100 CHF & 10M CHF per transaction, respectively
    • Trading will begin on Friday, December 6 
  19. CoinDesk: Microsoft Teams up With Enjin to Offer Crypto Collectible Rewards
    • Microsoft partnered with blockchain gaming platform Enjin to launch Azure Heroes, an initiative that rewards Azure community members with “badgers”, an Ethereum-based NFTs that are earned for positive actions, such as coaching, making demos, providing sample code, making posts about Azure or completing challenges, “Microsoft and Enjin have collaborated in a local pilot to create a blockchain based recognition programme. The Azure Heroes badgers were created in a number of original and unique designs which have been tokenised into a digital asset on the Ethereum public blockchain”
    • Participants can earn “badgers” across various categories, including community leadership, content, mentorship and innovators
    • Badgers will be created in limited numbers and will be verifiable on the public blockchain; some of the NFTs will be issued in “seasons” and tougher to win than others
  20. Bloomberg: Crypto Funds Are Closing While the Biggest Investors Stand Aside
    • While many have been long expecting the entrance of institutional investment into the crypto industry, the market’s hyper-volatile nature and regulatory scrutiny has kept institutional investors at bay
    • According to Crypto Fund Research, 70+ crypto-focused hedge funds (28 in NA, 23 in Europe, 14 in APAC, and 3 other) catering to pensions, family offices and wealthy individuals have closed this year; the number of new funds that have launched is half as many than in 2018
    • Regulated futures continue to be met with muted response from institutional investors; for example, CME’s daily volume this year averaged ~32,500 BTC ($236.8M) with +3,500 individual accounts trading, while Skew.com reported that less-regulated trading platforms outside the U.S. Aggregate Bitcoin futures volume exceeds $10B a day
    • There are 804 crypto funds in total, 355 of which are hedge funds and 425 are VC funds
    • Based primarily on overall prominence and not any one specific factor, Crypto Fund Research Group ranks Arrington XRP, BlockTower Capital, Brian Kelly Capital Management, Digital Currency Group and Fenbushi Capital as the top-5 crypto funds (provided in no particular order)
  21. CoinDesk: Top US Financial Regulators Urge Monitoring of Digital Assets, Stablecoins
    • The Financial Stability Oversight Council, a panel of top U.S. financial regulators including Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell, published an annual report that urged federal and state officials to monitor risks from digital assets like BTC, “The council recommends that federal and state regulators continue to examine risks to the financial system posed by new and emerging uses of digital assets and distributed ledger technologies”
    • The report says the risks of “existing and planned digital-asset arrangements” could put financial-industry stability in peril “via both direct and indirect connections with banking services, financial markets and financial intermediaries”
    • The report also cited “risks to consumers, investors and businesses associated with potential losses or instability in market prices” along with “illicit financial risks; risks to national security; cybersecurity and privacy risks; and risks to international monetary and payment system integrity”
  22. Pensions & Investments: Managers Struggle to Understand Blockchain Technology
    • According to a survey by Global Blockchain Business Council and Janus Henderson Investors, most senior executives in the investment management industry have an average to poor understanding of blockchain
    • Of the 76% of professionals from 50 buy-side organizations responding to the survey that described their executives’ knowledge as average, poor or very poor, 29% said executives’ level of knowledge was average, 35% said the level was poor and 12% said it was very poor
    • Less than 10% of firms are focused on recruiting blockchain experts, even though 70% believe blockchain will have a significant impact on their business over the next 5 years
    • 49% believe blockchain could be a key factor in differentiating fund managers who will be leaders in the asset management industry in the future
    • 64% said that a majority of asset managers will be using blockchain for one or more parts of their business within the next 10 years
    • The significant benefits of blockchain named in the survey were improved clearing and settlement capabilities, mentioned by 76% of respondents, and increased operational efficiency and lowering costs as margins shrink, named by 73% of respondents
  23. Reuters: EU Agrees Tough Line on Digital Currencies like Facebook’s Libra
    • EU finance ministers agreed that private digital currencies (i.e., stablecoins, like Libra, that are usually backed by traditional money and other securities) shouldn’t be allowed in the EU until associated risks are clearly addressed, “No global stablecoin arrangement should begin operation in the European Union until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed”
    • EU Finance Commissioner Valdis Dombrovskis said the commission is already working on this new regulation, adding that they could consider EU rules to regulate cryptoassets and stablecoins as part of a global plan
    • Ministers praised the ECB’s work on a public digital currency, which could represent an alternative to private initiatives
  24. Bloomberg: BIS Wants Central Banks at Center of Digital Cash Revolution
    • BIS General Manager Agustin Carstens said central banks must embrace the digital money revolution to remain at the heart of the global payments system
    • Carstens argues that while the private sector “excels at customer-facing activity,” central banks provide the basis for trust, ensure liquidity and set standards
    • He’s unenthusiastic about BTC and is worried that big tech companies like Facebook offering payment services means they could become unfairly dominant because of their existing data resources, “We have a responsibility to be at the cutting edge of the debate. There is really no choice but to do so, as otherwise events will overtake us”
    • Carstens warns that people shouldn’t be blinded by trendy things at the expense of stability in the financial system, “A gleaming skyscraper is an awesome sight. But when we admire one, we often overlook its foundations. These are out of sight, below ground level. But just because they are not visible, it does not mean that they don’t matter. On the contrary, they matter a lot”
    • Carstens approves of wholesale central bank digital currencies (CBDCs) because they’d be restricted to institutions that already have access to central bank deposits, but added that issuing them to the general public is perilous, “Imagine if anybody could open an account at the central bank. In extreme cases, the central bank could become the one-stop banker for almost everybody in the economy,” which would constitute a “daunting” risk
    • Link to coverage by Cointelegraph
  25. Brave: Brave Passes 10 Million Monthly Active Users, and Sees 19% Growth since 1.0 Launch
    • Brave grew from 8.7M monthly active users (MAU) in Oct. to 10.4M MAU at the end of Nov., a +19% increase across all platforms and 2x increase YoY
    • Brave’s daily active users tripled to 3.3M in the last 12 months
    • As part of the Brave 1.0 launch on Nov. 13th, Brave Rewards was launched on Brave for iOS and has contributed to the app’s 27% growth MoM
    • There are nearly 340,000 Brave Verified content creators on platforms such as YouTube, Twitter, Twitch, Web sites, Vimeo, and GitHub, a 12x increase from the 28,000 verified creators at the beginning of 2019
  26. CoinDesk: Asset Manager Secures SEC Approval to Create Novel Bitcoin Futures Fund
    • The NYDIG received SEC-approval to offer institutional investors shares of a new portfolio fund in the Stone Ridge Trust VI, dubbed the NYDIG Bitcoin Strategy Fund; the fund will invest in cash-settled BTC futures contracts traded on CFTC-registered exchanges, “The Fund will seek to purchase a number of Bitcoin futures so that the total value of the Bitcoin underlying the Bitcoin futures held by the Fund is as close to 100% of the net assets of the Fund (the “Target Exposure”), as it is reasonably practicable to achieve […] there can be no assurance that the Fund will be able to achieve or maintain the Target Exposure”
    • The fund, which the NYDIG is looking to raise $25M through, doesn’t intend to invest in BTC directly or any other crypto
    • SEC Investment Management Director Dalia Blass ostensibly reference the fund (indirectly) in a speech earlier this week, calling it “a prime example” of industry engaging with the agency on new types of products, “Last year, I issued a public letter calling on the fund industry to engage in a dialogue on the investor protection and substantive issues presented by such investments [i.e., valuation, custody, liquidity, arbitrage efficiency and potential manipulation]”  
    • SEC Commissioner Hester Peirce (AKA “Crypto Mom”) called the approval “a bit of progress”
  27. CoinDesk: State Street – 38% of Clients Will Put More Money into Digital Assets in 2020
    • State Street’s Managing Director of Digital Product Development and Innovation Jay Biancamano said the majority of asset managers that bank with State Street are interested in digital assets, but none have asked the custodian to store them yet, “We’re talking to them less about ‘Can you custody this,’ and more about how we can work together to make sure these changes aren’t disruptive to our business models”
    • After custody, State Street is interested in looking at fund administration, private placements, issuance and trading of digital assets
    • According to a survey conducted for State Street by Oxford Economics (based on 101 primarily U.S.-based asset managers and owners), 94% of State Street clients hold digital assets or related products (e.g. BTC futures), 38% said they will increase their allocation of digital assets in 2020, and 45% said their allocation would stay the same
    • 62% of clients said tokenization will improve risk management and 55% said it will enhance security, though only 36% said it would democratize investing for retail investors or increase liquidity
    • 62% said that the tech will be integrated into their trading process in 2020 and 65% said that DLT will improve financing products
    • 45% said they believe that a BTC ETF will receive U.S. regulatory approval in 2020