December 2022
The spotlight this month has been on FTX’s collapse: the unraveling of a messy relationship with sister-firm Alameda, mishandling of user assets, and questionable management practices from the one-time poster-boy of the industry, Sam Bankman Fried. The dominos have started to fall as institutional relationships with FTX come under pressure – Messari has put together a great diagram (below) – claiming victims such as Genesis Trading and BlockFi as they halted services, the latter filing for bankruptcy.
Contagion has also spread to indirect parties like Grayscale, an entity related to the Digital Currency Group, Genesis Trading’s parent company: its Grayscale Bitcoin Trust discount widened to as much as 45%, data from ycharts shows. Interestingly, we wrote about the rising trend of indirect exposure to BTC back in November 2021, and our recommendation of direct exposure still remains valid.
The timing of the event seems almost ironic, given that we wrote about “silver linings” in our last newsletter. One silver lining that has emerged is increased transparency from centralized exchanges as they publish Proof-of-Reserves. Focusing on positives, an interesting development that got buried under the negative news this month is the collaboration between Goldman Sachs, MSCI and Coin Metrics to introduce Datonomy™, a taxonomy of digital assets.(more on this in our “Top Stories”). This is a significant step in the maturity of cryptocurrencies as an asset class.
The event will go down in the industry’s history books, and the last thing we will say is that it was caused by human greed and malfeasance, not the underlying technology.
As we head into the last month of 2022, the team at Tokenomy would like to wish our users and subscribers happy holidays with your friends and loved ones. I hope we all get some time off to reflect on what has been nothing short of an eventful year, and to rest and recharge. As we wrap up the year, we look forward to meeting you again in 2023!
Kenny Chiang
Senior Research Analyst
Tokenomy
FTX, the third-largest crypto exchange in the world, collapsed in November 2022. The firm’s CEO, Sam Bankman-Fried, a crypto poster-child, appears to have engaged in massive criminal fraud, transferring customer assets to Alameda Research, an affiliated hedge fund. The firm filed for Chapter 11 bankruptcy protection on November 10 and reportedly has more than one million creditors, including a Canadian pension fund that wrote off a $95 million investment in FTX. Visual Capitalist put together a visual of FTX’s leaked balance sheet here.
BlockFi just filed for bankruptcy. U.S. cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy protection along with eight affiliates in a New Jersey court. BlockFi is the latest casualty since FTX’s collapse triggered instability in the crypto market. It highlights significant asset contagion risks and deficient risk management processes associated with the broader crypto ecosystem. Other casualties include Genesis Trading, that has warned of potential bankruptcy, and Gemini, which has paused withdrawals on its Earn-assets.
Goldman Sachs, MSCI, and Coin Metrics are collaborating to introduce Datonomy™, a taxonomy of digital assets. This provides a classification framework for the industry, similar to the Global Industry Classification System (GICS) for traditional risk assets, which will aid in portfolio and risk management. CoinDesk also introduced its Digital Asset Classification Standard (DACS) in December 2021 for the top 500 digital assets by market capitalization, where the dominance of BTC and ETH is apparent with “Currency” and “Smart Contract Platform” taking the lion’s share of the index (below).
Crypto market turmoil continues, and studies have found that more than 50% of bitcoin addresses are in the red. Just over 51%, or 24.6 million bitcoin addresses of the total 47.9 million, are below purchase price on their investments, according to data provided by blockchain analytics firm IntoTheBlock. About 45% are in the money, which means they have unrealized gains, while the rest are roughly at breakeven. Even though past data is no guarantee of future results, previous bear markets ended with the majority of addresses at a loss.
Financial services giant Fidelity found that 58% of surveyed institutional investors reported owning digital assets in the first half of 2022, representing an increase of 6% year on year, according to Fidelity Digital Assets’ fourth annual Institutional Investor Digital Assets Study. The survey included 1,052 institutional investors across Asia, Europe, and the US.
Binance announced the creation of a $1 billion industry recovery fund. Prominent crypto companies like Jump Crypto, Aptos Labs, Polygon Ventures, Animoca Brands, GSR, Kronos and Brooker Group have committed an aggregated $50 million, according to a press release. Separately, Binance.US also announced that it will be bidding on Voyager Digital’s assets after its deal with FTX fell through.
The Hong Kong government is reconsidering its stance on Virtual Asset ETFs, Tokenized Securities and Retail Investors, indicating that it is ready to engage with virtual asset service providers and invite them to the city.
Belgian authorities do not view Bitcoin and Ether as securities. The Financial Services and Markets Authority declared that crypto assets without issuers are not securities, but other regulations may apply if they have a payment or exchange function.
Lebanese investors are turning to Bitcoin and USDT as their country plunges into bankruptcy and remains plagued by hyperinflation and a crumbling banking system, CNBC reports. The local currency has lost more than 95% of its value since August 2019, the minimum wage has effectively plummeted from $450 to $17 a month, pensions are virtually worthless, Lebanon’s triple-digit inflation rate is expected to be second only to Sudan this year, and bank account balances are mere numbers on paper.
FX spot settlement in 10 seconds: the New York Fed releases results of its wholesale Central Bank Digital Currency (CBDC) research. In the first phase of Project Cedar, FX spot transactions were chosen, given their simplicity and their representation of a market which has a $7 trillion daily turnover and transactions typically taking 2 days.
Uniswap became the second-largest exchange for Ethereum trading after Binance. In the wake of the downfall of Sam Bankman-Fried’s FTX exchange, crypto traders are increasingly turning toward decentralized finance (DeFi) protocols – as Ethereum tokens flow away from big centralized crypto exchanges. According to data analytics platform Nansen, most DeFi protocols have experienced double-digit percentage weekly growth in users and transactions following the collapse of FTX.
Ethereum’s Merge lowers power consumption by over 99.9%. According to digiconomist, energy consumption ranged from 46.31 terawatt hour (TWh) per year to 93.98 TWh per year in 2022 before the Merge, and has fallen to 0.01 TWh post-merge.
Cathie Woods’ ARK buys 315K shares in GBTC (Grayscale’s Bitcoin Trust), the fund’s first purchase in almost 1.5 years, following FTX’s collapse. The ARK Next Generation Internet (ARKW) exchange-traded fund (ETF) purchased 315,259 shares worth about $2.8 million. While FTX’s collapse has eroded investor confidence in the industry, it is a positive sign that large asset managers are still deploying capital into the space. GBTC is currently trading at a discount of over 40% below its net asset value. This might reflect investors’ concern over the health of DCG (Digital Currency Group).
- The Grayscale Dilemma: A record discount and a golden goose, by Blockworks.
- The FTX contagion with Kraken co-founder Jesse Powell, podcast by What Bitcoin Did. How Sam Bankman-Fried’s Crypto Empire Collapsed, detailed report by NewYorkTimes.
- Guide to the potential implications of distributed ledger technology, a research report by JP Morgan’s CFO providing a guide on the blockchain and the decentralization revolution.
- What is happening in the Digital Currency Group (DCG)? White Man, by Arthur Hayes.
- Five reasons this could be the crypto bottom, Bankless podcast featuring an interview with Chris Burniske of Placeholder Ventures.
- Dual Currency Deposit is an excellent tool for short-term speculators when price volatility is high! Earn enhanced returns on BTC, ETH, and USDT deposits.
- Tokenomy Loan is live! Pledge your crypto assets to borrow IDK in just a few clicks!
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Crypto Investor Briefing is a Tokenomy newsletter—the content is for informational purposes only. You should not construe any such information or material as legal, tax, investment, or financial advice.
