Blockchain Confidential: 12 November 2021

Market milestones, Web2 flirts with Web3, and rock & roll apes in

The Week

In market news this week the digital asset market breached a $3T market cap and the NFT marketplace OpenSea surpassed $10B in trading volumes since inception.

Three major social media firms — Twitter, Reddit and Discord — announced moves into Web3 technologies, though Discord later walked back suggestions about incorporating a crypto wallet after an outraged response from the community. Twitter appears to be charging ahead though, with a report in the FT this week that it is forming a dedicated crypto team. And a value-destroying tweet by Elon Musk illustrated the potential for so-called “synthetics” — digital assets that reference stocks, commodities and other financial assets — to signal traditional markets.

Tim Cook revealed he holds Bitcoin, and Citadel’s Ken Griffin, a long-time crypto skeptic on Wall Street, made a surprising statement about Ethereum. Citadel’s current stance is to wait on “regulatory clarity,” but will we eventually see Citadel Securities following Jump Crypto into digital asset market making, or an announcement like the one from Point 72 that Citadel’s hedge fund arm is standing up digital asset funds?

Finally, on the pop culture side, Rolling Stone partnered up with the Bored Ape Yacht Club to mint its first-ever NFT’s, and Universal announced that they are forming a Gorillaz-like supergroup formed entirely out of ape NFT’s. This continues a trend of using NFT ownership to grant exclusive access to content.

The Essay

This week’s essay was originally published in September but not widely distributed. In it we look at a concept for self-regulation in DeFi, and the trade-offs this entails. Read The Fall of Plato’s Crypto Republic.

From the Research Desk

In a new feature this week, our Head of Research Ilya Kulyatin reviews a paper relevant to digital asset investing. Read Understanding Cryptocurrencies, a closer look at a paper co-authored with Campbell “Cam” Harvey.

Regulator Radar

In the U.S. the House sent the infrastructure bill to President Biden for signing, incorporating controversial crypto tax provisions which had prompted a significant uptick in industry lobbying when they first came to light due to worries about the broad definition of “brokers” responsibility for tax reporting. Also in the U.S., Congress scheduled a hearing on crypto for next week, which could provide some hints on current thinking on new regulation, and the crypto industry generally greeted previous announcements by the Biden administration on tax & stablecoins with alarm and disdain. Finally in the tax space, Austria also announced crypto tax policy, aligning it with capital gains treatment for stocks & bonds.

On the enforcement side, the SEC stopped a Wyoming DAO from registering two digital asset tokens as securities. This is notable because Wyoming has been at the forefront of progressive digital asset regulation at the state level, offering bank charters and legal clarity for DAO structures. While in some cases the states and the SEC seem to have been well in line (see recent state-level actions against Celsius which cited the Howey Test for securities as the basis), Wyoming is a different matter, and a conflict here could turn into a significant court decision in future.

In what is sure to contribute to the continuing debate about Bitcoin mining and sustainability, Kazakhstan is seeing strains on its grid, while Russian lawmakers formed a working group to look at the impact of the growing industry. In both cases the strains are triggered by the migration of Bitcoin miners to other corners of the world after the Chinese crackdown. In both cases there is a tax angle as well, as authorities take aim at underreporting by miners. This is a topic we will maybe explore in greater depth in a future essay.

At the Office

This week we announced that Jia Yng Wee has joined Cloudwall Capital as COO & Co-founder; she brings extensive experience in APAC markets both in operations and more broadly in capital markets & private banking. Ilya and I are thrilled to have her on board as a fellow co-founder. Everyone on the launch team has been busy getting the company off the ground and building our prototype system. Key pieces of the development environment are now up and running in the cloud we are coding away.