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- 2 risks around Bitcoin ETF launch that no one’s talking about 🧐🚀
2 risks around Bitcoin ETF launch that no one’s talking about 🧐🚀
PLUS: Head of South Korea’s financial regulator to discuss crypto with Gary Gensler. First $14M cross-border e-CNY gold purchase completed in Shanghai.
Manan Vora
December 21, 2023
Snapshot Web3
December 21, 2023
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Regulatory and Legal News
Lee Bok-hyun, the head of South Korea's Financial Supervisory Service (FSS), plans to meet with Gary Gensler, the chair of the United States Securities and Exchange Commission (SEC), in January. The meeting is expected to cover discussions on the status of the crypto market and the direction of supervisory policies affecting the space. Regulatory cooperation between countries is considered important for addressing the challenges posed by borderless virtual assets. The meeting comes at a crucial time for both regulators, with potential developments in the approval of spot Bitcoin exchange-traded products and the implementation of crypto-related policies.
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Innovation and Launches
The Bank of China's Shanghai branch has successfully completed the first-ever cross-border settlement for precious metals using the digital yuan central bank digital currency (CBDC), known as the e-CNY. The transaction, valued at 100 million yuan (approximately $14 million), involved the Bank of China's Shanghai branch transferring e-CNY CBDC settlement received overseas for gold via the Shanghai Financial Exchange International Board. This development reflects China's ongoing efforts to promote the adoption of its digital yuan and explore use cases in various industries, including international trade and finance.
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NFT, Gaming and Metaverse
Axie Infinity has introduced the highly anticipated Axie Part Evolution, a transformative feature that allows Axie owners to evolve their digital collectibles. Released on December 20, 2023, this evolution process aims to apply deflationary pressure on the Axie population and reshape the economy of Lunacia. However, evolving Axies comes at a cost, requiring specific materials, an ascended Axie, AXS tokens, and time. Axie enthusiasts can participate in the Race to Evolution Challenge, with exciting incentives for the first 10,000 evolved Axies, including Radiant Spirit Shells, Origin Axies, and a Mystic Axie for the owner of the first Axie evolving all six parts. The evolution process takes four days by default, but doubling materials results in an instant evolution.
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Scams and Hacks
The vulnerability of DeFi platforms to hacking has raised suspicions about insiders being involved in these incidents, given their familiarity with smart contracts and security protocols. While some high-profile cases, such as the $160 million hack of Wintermute, have been suspected to involve insiders, definitive proof can be challenging to obtain. Transparency in DeFi, coupled with the misuse of privacy-enhancing services, makes it difficult to ascertain the identities of culprits. While there have been cases of insiders engaging in fraudulent activities, such as the CEO of SafeMoon and a developer at Remilia Corp, the overall prevalence of insider involvement in DeFi hacks remains a complex and contested issue.
Ledger, a hardware cryptocurrency wallet provider, has pledged to reimburse users affected by the Ledger Connect Kit exploit. Around $600,000 in assets were reportedly impacted or stolen from users through blind signing on Ethereum Virtual Machine (EVM) decentralized applications (DApps). Multiple DApps, including SushiSwap and Revoke.cash, were compromised on December 14, 2023. Ledger commits to making affected victims whole and repaid by the end of February 2024. The company will also discontinue blind signing with Ledger devices, with the goal of sunseting this feature by June 2024.
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Interesting Reads
Coinbase researchers have highlighted two potential risks associated with the launch of spot Bitcoin exchange-traded funds (ETFs) in the United States. First, they warn that the launch could lead to a shortage of "regulated" Bitcoin, as issuers may struggle to acquire enough Bitcoin from regulated sources to meet the demand for their ETFs. Second, they point out that the launch could impact a popular institutional trading strategy known as the "basis trade," where traders take advantage of the price difference between spot Bitcoin and BTC futures contracts. As institutional investors gain direct exposure to Bitcoin through spot ETFs, the profitability of the basis trade may decrease. The researchers suggest that these risks are worth considering as the launch of spot Bitcoin ETFs approaches. Currently, there are 13 applications for a spot Bitcoin ETF pending with the U.S. Securities and Exchange Commission (SEC).
The Ordinals Protocol, which introduced nonfungible tokens (NFTs) to the Bitcoin network, has sparked debate and criticism. Bitcoin was originally designed as a decentralized digital currency focused on facilitating financial transactions, and the integration of NFTs through Ordinals is seen by some as a departure from its core objective. Critics argue that Ordinals exploit a vulnerability in the Bitcoin protocol, introducing digital clutter that leads to network congestion and inflated transaction fees, contradicting Bitcoin's vision of efficiency. The clash between the egalitarian ethos of Bitcoin and the exclusive nature of the NFT space raises concerns about the misalignment of Ordinals with Bitcoin's principles. Critics liken the integration of Ordinals to spraying neon graffiti on revered ancient monuments, undermining the essence of Bitcoin's foundational principles and challenging its monumental breakthrough in the digital world.
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Price Action
Coinbase (COIN) has witnessed a significant surge in its stock performance, with returns surpassing 400% in 2023. The stock reached $162 on December 19, marking a 20-month high. Coinbase's performance has outpaced both Bitcoin and Ether in 2023, and some traders are anticipating further upside continuation. The company's CEO, Brian Armstrong, remains optimistic about the future of crypto in 2024, despite challenges such as political pressure and the upcoming decision on the first U.S. spot Bitcoin exchange-traded fund (ETF). Coinbase recently participated in a fundraising move to support "pro-crypto" U.S. election candidates.
Solana's native token, SOL, experienced a significant price surge on December 20, surpassing $82 for the first time since May 2022. This surge, totaling 33.5% over the past two weeks, enabled SOL to surpass XRP in terms of market capitalization, making it the fourth-largest cryptocurrency. Some analysts are questioning whether Ethereum's Ether (ETH) can sustain its leadership, considering that Solana offers cheaper and faster transactions. Solana's emphasis on mobile accessibility and user experience has contributed to its growing popularity, attracting new users. Factors contributing to SOL's price gain include increased network activity and the success of Solana's SPL token launches. The recent rally is also supported by airdrops and the success of Solana's Saga phone, leading to increased demand and usage of the network's decentralized applications (DApps). The sustained growth in network activity, along with upcoming airdrops and token launches, positions Solana as a strong contender in the cryptocurrency market.
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Miscellaneous
The Federal Deposit Insurance Corporation (FDIC) of the United States has adopted a rule governing the use of its official signs and advertising to address concerns about false advertising, misrepresentations of deposit insurance coverage, and misuse of the FDIC's name or logo. Institutions insured by the FDIC will be required to display a black and navy blue sign on all websites and apps, brick-and-mortar bank locations, and certain ATMs starting in 2025. The move aims to prevent entities from potentially misleading customers about the FDIC insurance status of their funds. The updated rule follows concerns of rampant abuse in the crypto industry, with the FDIC taking action against firms like Gemini Earn, FTX US, and Voyager Digital for misleading investors into believing their investments were FDIC insured. The FDIC insures up to $250,000 per depositor in most situations.
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The information provided in this newsletter is for informational purposes only and should not be interpreted as investment advice, endorsement, or recommendation. Cryptocurrency investments carry significant risk due to their volatility. You should consider your financial situation, investment goals, and risk tolerance before making any investments. We strongly recommend consulting a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results.
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