January 2023
Hype vs. Reality
Innovation drives positive changes in human society, so people usually get excited about breakthroughs in technology. In particular, crypto and blockchain technology have caught the world’s attention and excitement because they enable anyone to trade innovative ideas through tokens, even before these ideas demonstrate practical solutions. The result is a prematurely over-enthusiastic industry that can be explained through the Gartner Hype Cycle.
In 2002, we witnessed many innovative ideas go up and down through the hype cycle, and many large crypto companies and projects failed due to reckless behaviors or improper risk management practices. The bear market will likely continue in 2023 until all the bad news is out. Yes, we can expect more bad news before the bull wakes up.
The bear market is a good time for reflection on the lessons learned. To help investors distinguish hype from reality, I recently wrote an article called Decrypting the Crypto Economy to help make sense of the token categories and their investment value. Investors can get a clear picture of what is driving the value of each token category, and decide on a suitable allocation to this asset class through a direct or indirect investment approach. Innovation will continue to happen, and keeping a pragmatic long-term view on these innovations will eventually pay off.
I wish everyone a happy and prosperous 2023.
Christian Hsieh
CEO, Tokenomy
FTX collapse puts accounting auditors in the hot seat. Prager Metis and Armanino, the auditors of FTX Trading Ltd and FTX US, face a lawsuit for vetting the failed cryptocurrency exchange’s books. Mazars, the global accounting firm based near Paris, has suspended proof-of-reserve reporting for crypto clients, including Binance and Crypto.com. Its rival Armanino is also ending its digital audit practice. As well as FTX, Armanino was also the auditor for Nexo, OKEX, and Gate.io.
No more crypto mining with major cloud service providers. Microsoft has just banned cryptocurrency mining from its online services to protect all of its cloud customers. Microsoft’s Summary of Changes to the license states: “Updated Acceptable Use Policy to clarify that mining cryptocurrency is prohibited without prior Microsoft approval.” Google has a similar policy in place, and Amazon’s AWS prohibits crypto mining during its 12-month free trial.
Binance finalizes acquisition of Indonesian crypto trading firm Tokocrypto, Tokocrypto’s CEO will step down and 58% of existing staff will be laid off as part of the deal, says Tokocrypto spokesperson. Tokocrypto is the first crypto asset trader in Indonesia that is regulated by Bappebti, the country’s commodity regulator.
Project Hamilton, the research project of the United States Federal Reserve Bank of Boston and Massachusetts Institute of Technology, announced its findings before Christmas 2022. The two-year project looked at the technical aspects of a hypothetical United States digital dollar central bank digital currency, or CBDC. MIT’s Digital Currency Initiative (DCI) — the organization that had partnered with the Boston Fed — is expected to hold a “research release” on Jan. 12, 2023. Register here if you are interested in attending virtually.
Bank Indonesia joins dozens of central banks worldwide in exploring a CBDC to counter “shadow central banking”. The central bank of Indonesia has formally laid out plans for a central bank digital currency (CBDC), pitched to combat what it calls the rising “cryptoization” of the country’s digital economy. Bank Indonesia’s new CBDC white paper outlines how “shadow currencies” and “shadow central banking” are furthering unregulated credit creation worldwide through crypto.
Brazil’s Chamber of Deputies approved a bill regulating the crypto industry. Brazilian legislators recently approved a bill regulating the country’s cryptocurrency industry. The proposed law would establish a licensing regime for crypto businesses and legalize the use of cryptocurrency for payments.
Different views on Capitol Hill: US Senator Cynthia Lummis wants to add Bitcoin to retirement funds despite the struggling crypto market. “I’m very comfortable with making sure that people can include Bitcoin in their retirement funds because it’s just different than other cryptocurrencies,” Lummins recently said on news outlet Semafor. Elsewhere on Capitol Hill, senators including Elizabeth Warren, Tina Smith and Richard Durbin have used the recent market turmoil to reiterate their calls for Fidelity Investments to wind back its BTC-linked 401(k) retirement product.
The Bank for International Settlements (BIS) has set standards on banks’ crypto exposure. The standard, which sets a limit of 2% on crypto reserves for banks, must be implemented by Jan. 1, 2025, according to an official announcement made on Dec. 16.
Belgian authorities do not view Bitcoin or 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.
Wrapped Bitcoin (WBTC), a token that allows Bitcoin to be used for DeFi on other blockchains, lost its peg and fell as low as 0.9875. This was the largest depeg in WBTC since August 2020 and is mainly due to the collapse of FTX. Its associated market maker, Alameda Research, was one of the largest minters of WBTC. You can learn more about WBTC here.
More on the bankrupt cryptocurrency exchange. FTX used its own FTT token to fund a takeover of the trading platform Blockfolio. FTX paid roughly $84 million for a majority stake in Blockfolio at a $150 million valuation, in what was among the largest crypto acquisitions to date. About 94% was paid in FTT tokens, a cryptocurrency created by FTX that is currently worthless. The SEC has made a claim that FTT is functioning as a security.
BTC-e, the Russia-focused cryptocurrency exchange that U.S. authorities shut down in 2017 due to its role in laundering funds associated with several forms of cybercrime, has sent nearly $165 million worth of Bitcoin to a group of personal wallets, exchanges, and other services. This marks the largest withdrawal by BTC-e’s controllers since April 2018, representing almost all of the Bitcoin left in the service’s wallet.
More than 90% of all scam coins have happened on the Binance Chain. Crypto risk monitoring platform Solidus Labs has flagged nearly 200,000 crypto rug pulls and DeFi scams since August 2020. Nearly 12% of all BEP-20 tokens, the standard token on the BNB chain, are tied to scams. Solidus Labs indicated that the BNB Chain has a higher percentage of contract scams than Ethereum. Its research shows that 8% of all ERC-20 tokens on Ethereum exhibit fraudulent characteristics.
Grayscale Bitcoin Trust (GBTC) shares hit a record-high discount rate relative to the price of Bitcoin (BTC), pushing past 50% for the first time after the U.S. Securities and Exchange Commission reiterated its reasons for denying an application to convert the world’s largest Bitcoin fund into an exchange-traded fund. Grayscale is a subsidiary of Digital Currency Group.
QCP Capital, a crypto trading firm based in Singapore, has at least $97 million stuck on FTX after the crypto exchange filed for bankruptcy. In an effort to recoup some cash, QCP is attempting to sell a claim on the frozen funds to distressed asset buyers. QCP has said it has exposure to FTX but did not disclose the amount.
Bitcoin miner Core Scientific files for bankruptcy amid rising energy costs and low BTC prices. The company accounts for about 10% of the entire hashrate of the Bitcoin network. It has gone into a prearranged bankruptcy, meaning it has agreement from most of its debt holders, but not all.
Crypto lender Amber raises $300M to avoid ‘significant drawdowns.’ The Singapore-headquartered firm, which also facilitates crypto trading, raised a $300 million Series C round, led by Fenbushi Capital US and “joined by other crypto-native investors and family offices”. In addition, Amber Group fully acquired Sparrow Holdings, which had obtained a payment institution license from the Monetary Authority of Singapore.
Binance.US agrees to buy Voyager’s assets for $1.02B. The bid represents the fair market value of Voyager’s cryptocurrency portfolio, which has a current market value of around $1.002 billion, and an additional consideration of $20 million in incremental value. Bloomberg’s Matt Levine wrote an interesting opinion piece on FTX’s now-defunct bid for Voyager earlier this year, and how these buyouts are structured with the bidder not actually required to provide a significant amount of cash, since they take over Voyager’s liabilities as well — food for thought?
A Bitcoin enthusiast implants a lightning chip into his hand to make BTC payments by hand. The Lightning Network continues to shock the Bitcoin community. A swiss IT Professional called F418 (not his real name) surgically implanted a Lightning-enabled chip into his left hand to make Lightning Network (LN) payments.
- Messari’s Crypto Theses for 2023. In the 6th edition of the Messari Theses for 2023, there are 160+ pages reviewing the key themes, people, and crypto sectors to watch, including CEFI, Policy, Layer 1s, DeFi, NFTs, DAOs, Web3 Infrastructure, and more.
- What is the crypto market outlook for 2023? Crypto 2023, by Consensus Magazine, and Digital Asset 2023 Outlook, by The Block Research.
- A crypto venture capitalist’s 2023 predictions: Adoption of DeFi, ZK Tech, NFTs and more will continue to increase in 2023, says Paul Veradittakit of Pantera Capital.
- Ethereum’s Hidden Tax: Maximal Extractable Value (MEV), by Treehouse Insights. The report delves into what exactly MEV is and its implications, solidifying the knowledge of how a blockchain truly operates.
- Decrypting the crypto economy: Making sense of the token categories and their investment value, by Christian Hsieh of Tokenomy.
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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.
