Why Wall Street Is Literally Salivating Over Bitcoin
There are big opportunities for investment firms in digital currencies. But a lot hinges on market regulators. Why Wall Street Is Literally Salivating Over Bitcoin
The Bank for International Settlements just put crypto-assets in the highest risk category, suggesting banks will need to hold a dollar in capital for each dollar’s worth of Bitcoin on their books. Risks abound, including regulatory uncertainty, crypto’s role in money laundering, the seeming vulnerability of wallets to getting stolen and backlash against the environmental costs of mining digital currencies. Not to mention the volatility that’s seen Bitcoin trade in a 130% range this year, leaving it currently about 40% off its April high.
Nevertheless, the potential growth for an asset class that’s exploded in recent years means the fund management community needs to be poised to meet client demand, according to a study just published by investment bank Morgan Stanley and consultancy firm Oliver Wyman.
If Bitcoin really is digital gold, then the bullion market provides a guide to its potential. Gold market capitalization has traditionally been between 5% and 15% of global gross domestic product, with about 50% of demand coming from its use as a store of value rather than a commodity. On that basis, the report argues that Bitcoin’s market cap could reach $6 trillion by 2025.
The real El Dorado could materialize if the Securities and Exchange Commission finally approves an exchange-traded fund that can buy Bitcoin in the U.S. The report’s most bullish scenario sees Bitcoin growing to $9 trillion in market cap, spawning $450 billion of higher-fee ETFs with potential annual revenues of $4.5 billion. No asset manager in the hugely competitive passive space will want to miss out on such a potential goldmine.
There are other opportunities for the investment industry to expand revenues in the coming five years, the report’s authors say. In private wealth, total assets could almost double by 2025 to $13 trillion. The chunky fees still available from assets including private equity, venture capital and real estate make that a $21 billion-a-year revenue rainmaker.
Another hot spot is in the environmental, social and governance space. A shift to “more mature” ESG strategies, including impact investing, will grow the market to $6.5 trillion from about $2 trillion. And in wealth management, the report says advances in technology will make it cheaper for firms to produce customized portfolios for a wider range of wealthy customers, even those with less than $10 million.
But it’s in the crypto arena where investment firms face the hardest choice. “There are likely significant benefits from being an early mover,” the report says.
There are also significant risks, both reputational and financial. That will probably inhibit the widespread introduction of portfolio tools based on virtual currencies, especially while regulators remain wary of being seen to legitimize the asset class.
All of which makes the SEC’s delayed decision on approving a Bitcoin ETF a key moment. If it says yes, then there’ll be a devil-take-the-hindmost rush to create a universe of investment products tied to digital currencies.
Until and unless it does, crypto is likely to remain just that bit too racy for most of the mainstream financial community.
4 Reasons Why Paul Tudor Jones’ 5% Bitcoin Exposure Advice Is Difficult For Major Funds
Major funds are probably interested in Bitcoin and altcoins, but four significant hurdles are preventing them from investing.
In an interview with CNBC on June 14, legendary investor Paul Tudor Jones sounded the alarm over advancing inflation. After last week’s consumer price index (CPI) report showed that United States inflation had hit a 13-year high, the founder of Tudor Investment advocated for a 5% Bitcoin (BTC) portfolio allocation.
When combined, the world’s 50 largest asset managers oversee $78.9 trillion in funds. A mere 1% investment in cryptocurrencies would amount to $789 billion, which more than Bitcoin’s entire $723 billion market capitalization.
However, there’s a fundamental misunderstanding on how this industry works, and this is what impedes a 1% allocation, let alone a 5% one.
Let’s investigate a few major hurdles that the traditional financial sector will have to vault before really becoming Bitcoin apes.
Hurdle 1: Perceived Risk
Investing in Bitcoin remains a significant hurdle for large mutual fund managers, especially considering their perceived risk. On June 11, The U.S. Securities and Exchange Commission (SEC) warned investors about the risks of Bitcoin futures trading — citing market volatility, a lack of regulation and fraud.
Even though several stocks and commodities have similar or even higher 90-day volatility, somehow, the agency’s focus remains on Bitcoin.
DoorDash (DASH), a $49 billion U.S. listed company, holds a 96% volatility, versus Bitcoin’s 90%. Meanwhile, Palantir Technologies (PLTR), a $44 billion U.S. tech stock, has an 87% volatility.
Hurdle 2: Indirect Exposure Is Nearly Impossible For US-Based Companies
Most of the mutual fund industry, mainly the multi-billion dollar asset managers, cannot buy physical Bitcoin. There is nothing specific about this asset class, but most pension funds and 401k vehicles do not allow direct investments in physical gold, art, or farmland.
However, it is possible to circumvent these limitations using exchange-traded funds (ETFs), exchange-traded notes (ETN), and tradeable investment trusts. Cointelegraph previously explained the differences and risks assigned to ETFs and trusts, but that only scratches the surface as each fund has its own regulations and limits.
Hurdle 3: Fund Regulation And Administrators May Prevent BTC Purchases
While the fund manager has complete control over the investment decisions, they must follow each specific vehicle regulation and observe the risk controls imposed by the fund’s administrator.
Adding new instruments such as CME Bitcoin futures, for example, might require SEC approval. Renaissance Capital’s Medallion funds faced this issue in April 2020.
Those opting for CME Bitcoin futures, such as Tudor Investment, have to constantly roll over the position ahead of monthly expiries. This issue represents both liquidity risk and error tracking from the underlying instrument. Futures were not designed for long-term carry, and their prices vastly differ from regular spot exchanges.
Hurdle 4: The Traditional Banking Industry Remains A Conflict Of Interest
Banks are a relevant player in this field as JPMorgan, Merrill Lynch, BNP Paribas, UBS, Goldman Sachs, and Citi figure among the world’s largest mutual funds managers.
The relationship with the remaining asset managers is tight because banks are relevant investors and distributors of these independent mutual funds. This entanglement goes even further because the same financial conglomerates dominate equities and debt offerings, meaning they ultimately decide on a mutual funds’ allocation in such deals.
While Bitcoin is yet to pose a direct threat to these industry mammoths, the lack of understanding and risk aversion, including the regulation uncertainties, cause most of the global $100 trillion professional fund managers to avoid the stress of venturing into a new asset class.
What Bear Market? Investors Throw Record Cash Behind Blockchain Firms In 2021
VC investments into crypto over the first six months of 2021 have already more than doubled those witnessed in all previous years combined.
Despite the recent slight recovery of the cryptocurrency market, there is no denying the fact that the crypto industry has been faced with a great deal of volatility over the last few months, made evident by the total market capitalization of the sector that dipped from $2.5 trillion to $1.18 trillion over a 45-day span earlier this year.
Through all these ups and downs, however, 2021 has continued to see an increasing amount of capital enter this fast-evolving space. For example, reports indicate that over the first half of the year alone, venture capital (VC) funds poured in $17 billion into various crypto-related startups and companies.
To put things into perspective, the above-stated figure is by far the most witnessed in any single year and is nearly equal to the total amount raised in all previous years combined. Johnny Lyu, CEO of cryptocurrency exchange KuCoin, told Cointelegraph: “Early-stage investors of cryptocurrency have already achieved profitability and have a deep understanding of the development rules of the market. This is the key reason why they are willing to invest despite market fluctuations.”
Lyu further opined that for traditional investors, the crypto industry allows them to obtain higher returns in a shorter cycle, citing the volatility of Bitcoin (BTC) as an example of the same. “When the market experiences volatility, it is the best time for investing, and investors will profit from it.”
A Closer Look At The Numbers
A hefty chunk of the aforementioned $17 billion figure comes from a single deal that saw a new cryptocurrency exchange called Bullish draw $10 billion in cash and digital assets following an initial injection by Block.one of $100 million, 164,000 BTC, and 20 million EOS tokens. Block.one led the capital raise alongside Peter Thiel, Alan Howard, Galaxy Digital and other investors.
In fact, just this one deal would have been enough to make 2021 the biggest year for venture capital investment in the crypto space, but if that wasn’t enough, the remaining $7.2 billion dollars would have equaled 2021 with 2018’s record of $7.4 billion raised, which is even more impressive considering that there are still five more months to go before the end of the year.
On the subject, Igneus Terrenus, head of communications for cryptocurrency exchange Bybit, told Cointelegraph that these numbers are not really startling since VCs are known for their voracious appetite for risk: “VCs are leveraging a relatively abundant and fungible resource — i.e., capita — to tap into something that is far scarcer and unique, which is partners and talents with whom they can build long-term value together.”
More Notable VC Activities
A little over a month ago, Silicon Valley-based venture capital firm Andreessen Horowitz announced the launch of its $2.2 billion crypto fund, with a spokesperson claiming that the company was “radically optimistic” about this space despite the price fluctuations. “We believe that the next wave of computing innovation will be driven by crypto,” partners Katie Haun and Chris Dixon were quoted as saying.
Furthermore, it should be pointed out that Andreessen’s first crypto-focused fund went live nearly three years ago, a time when the market was at its lowest levels historically, thereby showcasing the firm’s long-term belief in relation to this yet-nascent industry.
Similarly, Fireblocks, an infrastructure provider for digital assets, revealed that it had been successful in raising $310 million in a Series D round of funding, thus bringing the company’s total valuation to a whopping $2 billion in a period of less than six months. The fundraiser was co-led by institutional giants including Sequoia Capital, Stripes and the venture arm of Thailand’s oldest bank, Siam Commercial Bank.
Solana, a project that seeks to deliver a high level of scalability and transaction speed, also recently announced that it had completed a $314.15 million private token sale, making the nine-figure total the fourth largest fundraising event in the history of the crypto industry. Some of the company’s investors include Polychain Capital, Alameda Research and Blockchange Ventures, among others.
Cryptocurrency exchange FTX too recently closed a $900 million funding round, which saw a total of 60 participants, including Softbank, Sequoia Capital, Coinbase Ventures, Multicoin, VanEck and the Paul Tudor Jones family. As a result, the trading platform’s valuation has grown to $18 billion from $1.2 billion just a year ago, making it one of the largest cryptocurrency companies in the world.
Lastly, Dapper Labs, the team behind CryptoKitties and NBA Top Shot, secured about $305 million in new funding this March from a number of past and present NBA stars including the likes of Michael Jordan, Kevin Durant and Alex Caruso, and other investors including The Chernin Group and Will Smith’s venture capital outfit Dreamers VC. Following the closure of this latest funding round, Dapper Labs now reportedly holds a $2.6 billion valuation.
Is More Institutional Money Incoming?
To gain a better understanding of whether more capital will continue to enter the crypto space, Cointelegraph reached out to Antoni Trenchev, managing partner at Nexo, a digital asset service provider. In his view, the crypto-finance sector possesses enormous untapped potential, especially with digital currencies allowing for an unprecedented level of inclusion for the under-banked. He added:
“The deals we are seeing right now — like Fireblocks snapping up $310M, SoftBank investing $200M in Brazilian crypto exchange Mercado Bitcoin — are being made by billion-dollar money managers after months of boardroom discussions and a result from long-term strategic decisions rather than momentary judgment.”
Not only that, fintech firms currently seem to have an unprecedented opportunity to build upon their existing client bases by offering modern products and services that users and companies really need, especially those that can serve as hedges against inflation — fears of which are looming large on the horizon all over the world.
Simon Kim, CEO at Hashed, an early-stage venture fund, believes that VCs are just now starting to understand the intrinsic value of crypto projects as it was difficult to justify the price of tokens that most blockchain projects had created in the past years:
“Ethereum is facilitating millions of transactions through numerous DeFi services, metaverse games and NFT services built on top of the network. There are now more than 20 million monthly active user accounts using Ethereum. The intrinsic value of DeFi tokens is even more apparent than Ethereum or Bitcoin.”
He further highlighted that much like how the IT industry leaders such as Amazon and Google grew amid the dot-com bubble, many crypto projects today have a solid foundation with a suitable business model and data. “This is why VCs are now pouring their money into crypto projects. They now believe that the next Google, Amazon and Facebook could be found in the space”, said Kim, closing out.
On a more technical note, Lyu highlighted that the increasing VC investments can, in large part, be attributed to the growing number of users that have seemingly flooded into various centralized exchanges (CEXs) and decentralized exchanges (DEXs) in recent months, adding: “Some popular DEXs such as Uniswap and PancakeSwap have exceeded traffic numbers related to some leading CEXs.”
What Lies Ahead?
Despite the COVID-19 pandemic that has had the global economy in a sort of standstill over the last year and a half, reports suggest that global venture capital funding over the first half of 2021 has shattered all previous records, with the figure now standing at $288 billion. That’s more than $100 billion when compared with the last six-month cycle record that was set during the second half of last year.
Jehan Chu, Managing Partner for Kenetic, a venture capital firm investing in blockchain companies, told Cointelegraph that the ongoing glut of capital sloshing around the world is forcing investors to take greater and greater risk in search of alpha, and despite ongoing institutional uncertainty about the future of crypto, they have no choice but to invest in the space:
“Fortunately, blockchain technology and crypto have graduated from a carnival freakshow to an inevitable future, so confidence in the underlying companies is at an all-time high. Additionally, a generation of cheap money flowing from the U.S. printing press has concentrated into the hands of investors. There has never been so much capital and the traditional gates have been eroded by partisan politics and poor financial management.”
Founding managing partner at Borderless Capital Arul Murugan believes that as more applications go live, greater infrastructure will be required to be built and as more infrastructure is built, it will attract even more applications, creating a virtuous cycle that started happening this year.
Not only that, he is of the opinion that the gap between traditional finance and decentralized finance (DeFi) is closing up with more people steering towards the crypto spectrum. Murugan opined: “Right now, crypto is less than 1% of traditional finance and people are seeing huge growth opportunities.”
Therefore, as an increasingly digitized future draws closer, the use of crypto tech will likely continue to grow, so it stands to reason that more players from the traditional finance space will continue to make their way into this burgeoning market, helping it to grow even further.
55% Of The World’s Top 100 Banks Reportedly Have Crypto And Blockchain Exposure
Over half of the 100 largest banks by assets under management are reportedly investors in major crypto and blockchain technology-based companies and projects.
Global banking giants are reportedly increasing their involvement in the emerging crypto and blockchain firms by way of early- and late-stage funding for projects and businesses in the industry.
According to research by Blockdata, a blockchain market intelligence outfit, 55 out of the top 100 banks by assets under management (AUM) have some form of exposure to the novel technology. This involvement reportedly cuts across direct and indirect investments in crypto and decentralized ledger technology firms by the banks themselves or via their subsidiaries.
Blockdata’s research places Barclays, Citigroup and Goldman Sachs among the most active backers of crypto and blockchain firms, with JPMorgan and BNP Paribas also identified as serial investors in the emerging space.
These investments are part of a larger trend of significant backing for blockchain startups, with funding figures already doubling the amount recorded in 2020, according to a KPMG report.
The research also shows crypto custody as a major focus point for banks delving into the crypto space. Indeed, almost a quarter of the top 100 banks by AUM are either developing crypto custody solutions or are backing startups that offer custodial services for digital assets.
As previously reported by Cointelegraph, several banks in the United States, Asia and Europe are building crypto custody platforms as part of their preliminary foray into cryptocurrencies.
Blockdata attributed the growing crypto and blockchain involvement among banks to three main factors — skyrocketing profits of cryptocurrency startups, regulatory advancements, and the increasing demand among bank customers for exposure to digital assets.
Back in May, NYDIG president Yan Zhao stated that the massive revenues of crypto trading giants such as Coinbase were making banks reexamine their initial reticence toward cryptocurrency involvement.
This massive revenue potential is despite the significantly smaller teams working for these major crypto companies.
At $58.09 billion as of the time of writing, Coinbase sits on a valuation almost half that of Goldman Sachs, the 13th largest bank in the world, despite employing only about 4% of the latter’s workforce.
Asset Managers And Companies Accumulate 1.2M Bitcoin Worth $57 Billion
While asset managers have accumulated 4% of Bitcoin’s supply, private and public companies have also amassed 1% each.
Around 6% of Bitcoin’s circulating supply has been accumulated by asset managers and companies, signaling ever increasing mainstream and institutional adoption of crypto assets.
According to Buy Bitcoin Worldwide, 816,379 BTC worth $40.1 billion is currently held by 14 Bitcoin fund issuers and asset managers — representing 4% of the cryptocurrency’s supply.
Industry leader, the Grayscale Bitcoin Trust, represents more than 3% of the Bitcoin supply, managing 654,600 BTC (worth $32 billion). CoinShares’ XBT Provider ranks second with 48,466 BTC ($2.4 billion) representing 0.23% of supply. The 12 remaining issuers represent 113,313 BTC or 0.54% of thesupply combined.
The data provider also tracks 34 public companies that hold BTC on their balance sheets, which collectively command 1% of Bitcoin’s supply.
Half of all Bitcoin held by public companies is in the possession of MicroStrategy, which after adding 3,907 Bitcoin to its stash since the start of July, now holds 108,992 BTC worth $5.3 billion.
Electric vehicle manufacturer Tesla accounts for 20% of the Bitcoin held by private companies, with the firm having accumulated 42,902 BTC worth nearly $2.1 billion.
Private companies have absorbed another 174,068 BTC worth $8.5 million, cornering 0.83% of Bitcoin’s supply. Roughly 80% of BTC stashed away by private companies is held by Block.One — with the firm currently sitting on 140,000 BTC worth $6.8 billion.
Estimates vary among data providers however, with Bitcoin Treasuries tallying 1.4 million BTC on the balance sheets asset manager and companies. A further 260,000 BTC are attributed to the balance sheets of national governments.
Bitcoin’s supply will cap at 21 million BTC, with analysts estimating the final Bitcoin will be mined in the year 2140. At the time of writing, roughly 18.8 million BTC are in circulation. However access to one fifth of all Bitcoin (or more) is believed to have been lost, meaning that asset managers and companies may control an even greater share of the supply.
While large entities are gobbling up BTC, Ethereum has appeared to have been undergoing a supply shock of its own in the wake of its London upgrades that introduced a burn mechanism to the crypto asset’s fee market.
According to Watch The Burn, 97,369 Ether worth $313.5 million has been destroyed in the 21 days since London, meaning that roughly 4,637 ETH are being burned daily on average. Overall, Ethereum’s burn mechanism has resulted in 35% a net reduction in the number of newly minted Ether entering supply.
Mutual Fund Giant Franklin Templeton Eyes Bitcoin, Ether Trades With Planned Hires
The $1.5 trillion asset manager is a newcomer to crypto investing despite years of experimenting with blockchain tech.
Asset manager Franklin Templeton is staffing up to execute trades for bitcoin and ether, according to a series of job postings.
At least two crypto-focused jobs posted this week – one trader, one researcher – would join the “growing” investments team within Franklin Templeton’s Digital Assets Management division, the listings said.
“We are looking for a Crypto Currency [sic] Trader to execute trades for several strategies using the largest, most liquid listed and tradable crypto assets (e.g., BTC, ETH, etc.),” read one.
The twin gigs, which appear to mark Franklin Templeton’s first foray into bitcoin, highlight the $1.5 trillion firm’s newfound interest in crypto as an investable asset class. In late July, it backed a Galaxy Digital fund of funds that chases venture opportunities in the crypto economy.
Franklin Templeton’s planned crypto hires are far more direct, however. The roles will be tasked with executing crypto strategies, building relationships with blockchain developer communities and creating new crypto products for the mutual fund issuer and money manager.
It’s not entirely clear if Franklin Templeton’s crypto trading will be directly involved with the coins. The trading gig calls for experience in derivatives and futures markets, which could indicate a focus on trading regulated bitcoin and ether contracts – as other investment firms have done.
Franklin Templeton did not return multiple requests for comment.
The asset manager has toyed with blockchain tech since at least mid-2019, mostly as a novel feature to spice up plain-vanilla money market funds. It has also experimented with share tokenization and last year joined custodian firm Curv’s $23 million Series A.
Leadership remained skeptical of cryptocurrency as an investment through this year. In March, Chief Market Strategist Stephen Dover told the Financial Review that Franklin Templeton held no cryptocurrencies in any portfolio. CEO Jennifer Johnson said she was “no fan” of bitcoin during an earnings call in May.
Franklin Templeton Chief Financial Officer Matthew Nicholls struck a more moderate tone at the time: He told analysts the firm was “focused” on getting ready for crypto.
“Having the capability to field, let’s call it, digital assets, in general, is going to probably be important for the future,” he said.
First Crypto Fund In Japan Targets Long-Term Retail Investors
Japanese financial conglomerate SBI Holdings Inc. is aiming to launch the country’s first cryptocurrency fund by the end of November that can give individual investors a way to diversify their broader portfolio.
The fund could grow to several hundred million dollars invested in coins including Bitcoin, Ethereum, XRP, Bitcoin Cash, Litecoin and possibly others, said Tomoya Asakura, who oversees asset management for Japan’s biggest online brokerage.
Investors may need to put in a minimum of roughly 1 million yen ($9,100) to 3 million yen and it will mainly be aimed at people who understand risks associated with cryptocurrencies, such as the big price swings, he said.
“I want people to hold it together with other assets and experience firsthand how useful it can be for diversifying portfolios,” said Asakura, president of SBI affiliate Morningstar Japan K.K., in an recent interview. “If our first fund goes very well, we’d like to move quickly” to make a second one, he said.
Despite tougher regulations for cryptocurrency businesses than in many other countries, digital assets are growing in popularity in Japan. Coinbase Global Inc., the U.S.’s largest cryptocurrency exchange, recently started a local trading platform and cryptocurrency transactions for the first half of 2021 more than doubled to 77 trillion yen from a year earlier, data from an exchange association shows.
It has taken SBI four years to get the fund off the ground, in part due to tighter regulations in response to hacking and other domestic scandals that forced changes from its early plans. The Financial Services Agency, the regulator, banned companies from selling cryptocurrencies through investment trusts, a popular way of investing in Japan that SBI initially sought to use. Instead, the brokerage decided on a vehicle known as an “anonymous partnership.”
“There is an overwhelming perception that cryptocurrencies are highly volatile and speculative,” Asakura said. His job is building a “track record” showing the public and regulators that investors get a more resilient portfolio by adding cryptocurrencies because they often move inversely to stocks and other traditional investments, he said.
Cryptocurrency funds can be a “satellite” asset in a portfolio, as opposed to those considered to be “core,” that will help boost overall returns, Asakura said, without giving an expected level of return for the portfolio. SBI is open to making another fund designed specifically for institutional investors if there is enough demand, he added.
“Once people feel it firsthand,” he said, “they will understand that we aren’t recommending cryptocurrencies as a tool of speculation.”
Virginia Public Pensions Make A Direct Bet On Cryptocurrencies
A couple of Virginia public pension funds that first dipped their toes into the world of digital assets by investing in venture capital two years ago are at it again, and this time they are making a more direct bet on cryptocurrencies.
The Fairfax County Police Officers Retirement System and Fairfax County Employees’ Retirement System are planning to invest, pending board approvals, a total of $50 million in Parataxis Capital Management LLC’s main fund, which buys various digital tokens and cryptocurrency derivatives.
The outlays come on the heels of the Fairfax funds — which together manage about $7.15 billion — investing several times in Morgan Creek Asset Management funds, and, earlier this year, in crypto venture firm Blockchain Capital.
While some of these investments ended up going into coins like Bitcoin, the majority was invested into technology startups, so Fairfax considered them venture-capital investments. Parataxis, with its focus on actual coins, is different.
“We think that there’s going to continue to be volatility in crypto, and this is going to be good for value traders,” Katherine Molnar, chief investment officer for the police officers retirement fund, said in an interview with Bloomberg News. “It’s an area that’s going to grow in adoption and interest. We think that it’s inefficient enough, so we think there are some alpha opportunities to take advantage of.”
While many pension funds and endowments are exploring cryptocurrencies, few besides Fairfax have publicly announced they are jumping in. Regulatory uncertainty and high volatility of the coins have been partly responsible for the hesitancy.
But that same volatility can lead to outsized returns, which have been one reason for Fairfax’s expanded investment. Molnar’s $1.95 billion police retirement fund was planning for 2% exposure to crypto via Morgan Creek and Blockchain Capital, but at the end of June crypto accounted for 7% of assets, due to appreciation, she said.
Although Molnar couldn’t discuss exact appreciation, crypto “was not an insignificant contributor to performance” in the second quarter, she said.
While in recent months some companies such as MicroStrategy Inc. have begun investing their corporate treasuries into Bitcoin, Fairfax doesn’t want to invest into coins directly, Molnar said — partly because there are still too few data points to draw conclusions from on whether Bitcoin can be likened to gold, for example, she said.
“Three years ago we weren’t comfortable making a bet on which cryptocurrency will rise to the top,” she said. “And I am not sure we are comfortable yet doing that today.”
Parataxis was started in 2019 by Edward Chin, previously an investment banker at Michael Novogratz’s Galaxy Digital Holdings, and by Thejas Nalval, a former portfolio manager with digital-asset hedge fund LedgerPrime and head of asset management at the Element Group.
Parataxis has about $55 million in assets under management, Chin said. The two Parataxis funds invest in everything from Bitcoin to derivatives to DeFi coins such as MakerDAO. It plans to launch another fund.
“This is our first pension fund,” Chin said in an interview. “We are in conversations with a couple more, and a couple of endowments as well. It’s clear that people are trying to get exposure.”
Cambrian Says Its New Bitcoin, Ethereum Trusts Will Cut Through Volatility
The California-based asset manager said the new trusts will reduce volatility through its active management strategy.
Quantitative crypto hedge fund Cambrian Asset Management said its two new actively managed trusts, one trading bitcoin and one trading ethereum, will manage downside risk.
* The $200 million fund said in a press release on Wednesday that its management strategy will “manage downside risks and maintain substantial upside potential while seeking to defer taxable events for their investors.”
* Cambrian claims this strategy has helped its hedge funds cut downside volatility by over 70%, while delivering higher returns than a digital asset passive index in the past three years.
* Only institutional and accredited investors can buy into the trusts with an initial minimum investment of $50,000.
* The trusts will charge 4% in management fees, almost double the fees charged by Grayscale Bitcoin Trust, according to Bloomberg.
* Cambrian’s flagship hedge fund has returned 76% this year until August, Bloomberg reported, citing people familiar with the matter.
* The hedge fund was founded by executives from Winton Capital and Millennium Management, and is based in Mill Valley, California.
Beyond Bitcoin: The Future Of Digital Assets Is Bigger Than The First Crypto
While Bitcoin is the most recognizable digital asset, it’s just one asset class among many that are here to evolve financial services globally.
While change is guaranteed, the scale and scope of that change are not. For the financial industry, blockchain — the technology that undergirds Bitcoin (BTC), Ether (ETH), nonfungible tokens (NFTs) and other digital assets — has brought us to the crossroads.
What Will The Future Of Money Look Like?
We have been operating on the frontline of crypto for the past 10 years, protecting large and small investors alike while allowing them to invest in this exciting new frontier of finance. The experience we’ve gained here helps us to see what’s coming down the road.
In this historical period, a myriad of outcomes is possible but one thing is for certain: The efficacy and innovation of the technology will influence well beyond traditional financial sectors.
The Mature Digital Assets Industry Is Coming
Blockchain offers a faster, more efficient and more secure structure for financial transactions when compared with the contracts, transactions and records that currently define our economic, legal and political systems.
Harvard Business Review put it succinctly with this simile: “[The old financial structures] are like rush-hour gridlock trapping a Formula 1 race car. In a digital world, the way we regulate and maintain administrative control has to change.”
From generation to generation, technologies have updated how we complete financial transactions. The modern credit card has been around since the late 1950s, the first proper sale over the internet was completed in 1994, PayPal was founded in 1998 and went public and was sold to eBay in 2002, and Satoshi Nakamoto started the blockchain revolution in 2008.
Today, financial heavyweights are no longer standing on the sideline. And 55 out of the 100 biggest banks in the world have some form of exposure to this novel technology.
The first international regulations were handed down in Japan in 2016 after hacks against crypto exchanges, including an 850,000 BTC theft against Mt. Gox. Because the success of any financial market is based on predictability, security and general market efficiency, regulators continue to contemplate the direction and viability of their involvement with cryptocurrencies.
Regulators and businesses want to ensure that investors enjoy certain protections in any marketplace — digital or otherwise — to spark participation. Think Federal Deposit Insurance Corporation (FDIC) for United States banks or eBay’s Money Back Guarantee. Without regulation, market participants can be exposed to long- and short-term risks.
Regulators also ensure that markets play with an equal set of rules. As Commodity Futures Trading Commission Commissioner (CFTC) Dan Berkovitz said back in June:
“It is untenable to allow an unregulated, unlicensed derivatives market to compete, side-by-side, with a fully regulated and licensed derivatives market.”
And, importantly, it’s not just regulators and governments that will decide the future — it is about us, investors, leaders and the general consumer — deciding how we want to use digital assets in the future.
Evolving Language For Useful Digital Assets
As the market matures, the cryptocurrency industry will undergo an evolution of language as well. Regulation and broad adoption will change the way the media and public perceive and talk about digital assets.
Crypto will retain its unique character as it matures — don’t expect the HODL, FUD, and “to the moon” talk to disappear — but it’s critical that a broader cohort of blockchain investors feel comfortable within the space.
It may seem like a small thing, but attention to fusing the languages of crypto and institutional finance has enabled us over the past 10 years to work with a range of institutions from neobanks, fintechs and brokers to banks, hedge funds and family offices.
The evolution of language happens in tandem with more large investors seeing blockchain’s long term value proven out over time as they begin to diversify major holdings to include crypto, thus increasing the association between these new assets and the legacy assets that have held historic value — like gold, bonds or central bank-backed fiat.
In business, you’re judged by the company you keep, so we won’t get that “hearty embrace” without adopting the language of financial services and regulators more broadly.
Nonetheless, it’s not unreasonable to imagine valuing crypto as a commodity rather than a digital currency — U.S. Federal Reserve Chair Jerome Powell told Congress in 2019 that Bitcoin was a “speculative store of value” like gold. But Bitcoin isn’t the whole story, just the most talked about.
The industry must stop focusing on one particular use case for the technology and start talking more about money, investments, financial management and smart payments.
The Industry Is Bigger Than Any One Token
We’ve discovered over the past 10 years that customers are increasingly drawn to assets that have utility and can solve complex problems.
Different Digital Currencies Have Different Use Cases. For Example:
* Tether (USDT) would work well to pay salaries because it’s tied — tethered — to U.S. dollars, thus avoiding the volatility of Bitcoin.
* Brave’s Basic Attention Token (BAT) is charting a course for the future of online content by issuing payments, in BAT, to the users of its browser for viewing ads. Those users can then tip anyone on the internet using the BAT in their digital wallet.
* And the Audius governance token (AUDIO) makes a compelling case for crypto playing a bigger part in the future of the music industry, providing security, exclusive feature access and community-owned governance to artists and fans.
Blockchain is about solving problems, not taking over the world, replacing fiat or banks, a common misconception among the general public. While BTC may be the most recognizable digital asset because it has name recognition and arrived first, it’s just one asset class among many.
So What Does The Future Look Like?
Congress opened up the doors to regulators earlier this year when the Senate passed an infrastructure bill that contained an amendment bringing new scrutiny to the crypto industry.
Investors, digital asset exchanges, smart technologists, government officials, regulators and everyone in between will benefit from a more mature marketplace that protects its consumers and values transparency, predictability and honest communication.
Likewise, the majority benefit from clarity about which digital assets hold actual value and which exist as manipulative tools to make the wealthy wealthier.
We’ve been there since the beginning and we’ve seen the ebb and flow of trends. But we’ve also seen that what survives at the end of the day is always brilliant ideas that solve the emergent problems of our time.
Yes, change is here. The mature digital assets industry has begun to emerge over the last several years, bringing with it a synergy of language that has become more sophisticated and invited a broader audience to our table.
The assets and insight that this new audience brings, in turn, will provide rich confidence across industries. That confidence will lead to the adoption of blockchain technology to unravel issues that no one ever dreamed could be addressed with blockchain.
Stockbroker Platform Public.Com Adds Crypto Trading Feature
The stock trading app is set to debut crypto trading for its users except those in the state of New York.
Public.com, a neo-brokerage outfit based in New York has announced the launch of crypto trading services for its customers.
In a statement issued on Thursday, Public revealed that users will be able to trade and store cryptocurrencies on the same app they use to manage their stock portfolios.
According to the announcement, the new crypto trading feature will be made available to users gradually over the next few weeks.
As part of the crypto trading service, Public is offering support for Bitcoin (BTC), Ether (ETH), and Dogecoin (DOGE). Other cryptocurrencies offered include Cardano (ADA), Litecoin (LTC), and Bitcoin Cash (BCH).
Stellar (XLM), Zcash (ZEC), Ethereum Classic (ETC), and Dash (DASH) complete the list of 10 cryptos to be offered by Public.
Public’s crypto trading feature is offered in conjunction with Apex Crypto. Since the latter does not hold a BitLicense in New York, the product will not be available for residents in the state.
Apex Crypto will reportedly provide execution and custody services for Public’s new crypto trading product.
Public’s foray into the crypto space could be part of the company’s plans to rival major stock trading platform Robinhood.
Back in February, Public secured $220 million in additional funding to cross the $1 billion valuation mark.
Like Robinhood, Public also offers zero-commission stock trading but has an added social media component that could leverage the emerging meme stock-fuelled retail investment frenzy.
In February, Public also jettisoned the payment for order flow (PFOF) practice that sees brokerage platforms routing orders to market makers for trade execution rather than sending same straight to exchanges.
The practice has drawn significant controversy and was a major talking point during the Gamestop saga from earlier in the year.
As previously reported by Cointelegraph, Robinhood could lose a significant revenue channel if United States regulators ban PFOF.
Crypto And Pension Funds: Like Oil And Water, Or Maybe Not?
Pension funds, the most cautious of institutional investors, are now giving the booming crypto and blockchain sector a closer look.
There are good reasons why pension funds should not invest in the crypto and blockchain space. The industry is too new, too volatile, and stultifyingly technical. Moreover, the rules and regulations to govern the sector have yet to be settled.
But the fixed-income financial instruments that pension funds typically favor — like long-term government bonds — are scarcely paying anything these days, so the traditional caretakers of employees’ retirement funds have a dilemma: Where to find investment yield in a world where inflation is looming?
It may not be entirely surprising, then, that pension funds — the most cautious of institutional investors — are now giving the booming crypto/blockchain sector a closer look.
“Family offices led the charge into crypto funds several years ago, but we’ve seen increasing interest from pensions, and there are many pensions that now have exposure to crypto,” Stephen McKeon, a finance professor at the University of Oregon and a partner at Collab+Currency, told Cointelegraph.
“We’ve seen increased interest from pensions” in the past year, added Christine Sandler, head of sales, marketing and research at Fidelity Digital Assets — part of an uptick among all institutional segments — “which we believe reflects the growing sophistication and institutionalization of the digital assets ecosystem, combined with a strong macro narrative driven by response to the pandemic.”
Pension funds tend to be “more conservative, risk-averse investors relative to other segments,” according to Sandler, and they mostly favor investments that have exhibited long-term growth and low volatility, which might arguably make them leery of the crypto/blockchain space.
An Early Adopter
One of the first United States-based pension funds to invest in blockchain firms was the Fairfax County Police Officers Retirement System, based in Fairfax, Virginia.
It tested the waters back in 2018 with an 0.5% allocation in a fund that was investing in blockchain-related enterprises, Katherine Molnar, the fund’s chief investment officer, told Cointelegraph at the recent SALT conference in New York City.
The fund raised its allocation to 1% in 2019, and in spring 2021, it added two new blockchain-related investment funds. The current target allocation is 2%, but because crypto and crypto-based companies have been rising in value, 7% of overall fund assets are now crypto-related — again, mostly “pick-and-shovel” type enterprises that support the industry — like crypto exchanges and custodians.
The pension fund can’t rebalance because it is invested in venture capital funds, Molnar explained, but in mid-September, Fairfax signaled its intent to invest $50 million with Parataxis Capital, a crypto hedge fund that invests in digital tokens and cryptocurrency derivatives. “It’s not a directional bet, but it’s not totally illiquid either,” she told Cointelegraph.
The fact that the police officers’ pension fund has invested until recently in crypto-related companies as opposed to cryptocurrencies — Coinbase rather than, say, Bitcoin (BTC) — isn’t uncommon, either.
U.S. institutional investors surveyed by Fidelity Digital indicated a greater propensity for digital asset investment products rather than direct ownership of cryptocurrencies, Sandler told Cointelegraph, adding:
“From our study, we also know that pension funds and defined benefit plans, like many other institutional investor segments surveyed, favor active management of an investment product containing digital assets.”
More pension funds may now travel this road. “We’ve started to see participation not just from the hedge fund segment, which we’ve long seen participation from, but now it’s recently from other institutions, pensions and endowments,” Michael Sonnenshein, CEO of Grayscale Investments — the largest manager of digital assets — told Bloomberg earlier this year, adding he anticipated that pension funds and endowments would drive much of his investment firm’s future growth.
Even pension-fund giants like the California Public Employees Retirement System (CalPERS) have dipped a toe in the crypto/blockchain sea.
CalPERS invested in Bitcoin mining firm Riot Blockchain LLC some years back and has since raised the stake to about 113,000 shares — worth about $3 million in early October — though that is minuscule compared with CalPERS’ $133.3 billion in equity assets under management, as of its 13F filing in August.
How Much Is Enough?
What sort of crypto allocation is appropriate for a pension fund today? Jim Kyung-Soo Liew, associate professor at Johns Hopkins University’s Carey Business School, co-authored one of the earliest academic papers on crypto and pension funds back in 2017. That paper found that a 1.3% Bitcoin allocation would be “optimal” to fully reap the cryptocurrency’s diversification benefit.
What is appropriate today? “Going forward, an institutional investor should be looking at a 10%–20% allocation,” Liew told Cointelegraph, and he expects large pension funds to be investing as much as one-fifth of their total assets in the crypto/blockchain space within the next three to five years.
98% of retirement accounts in the US can’t access #Bitcoin.
What happens when they do?
— Dan Held (@danheld) October 7, 2021
“We’ll see more institutional investors,” Liew said, adding, “Their horizons are long.” Today’s $2 trillion in cryptocurrency market capitalization could swell to $20 trillion in the next three to five years, he added, assuming a favorable regulatory environment.
Asked if this doesn’t fly in the face of pension funds’ traditional conservatism, Liew answered, “Pension funds have boards; they have investment committees,” and yes, “they’re often accused of being overly conservative and wanting to understand things 100% before acting.”
From an education standpoint, it will take some time and effort to bring them along, but chief investment officers are quite intelligent as a group, and they will be able to grasp the concepts, Liew said. One problem, he allowed, “They’re not rewarded for risk-taking.”
There may be other impediments. “One challenge is that pensions tend to require large tickets,” McKeon told Cointelegraph, “so the space had to mature a bit to accept that amount of capital. As funds continue to scale up, we expect to see more participation by pensions.” Volatility remains a concern, said Sandler, pointing to data:
“‘2021 Institutional Investor Digital Assets Study’ found that 73% of U.S. pension funds, defined benefit plans, and endowments and foundations surveyed cited volatility as the top barrier to adoption.”
U.S. pension funds and defined benefit plans still hold a fairly negative view of digital assets, according to the survey, “but I think we’ll continue to see that negative perception decrease as the market continues to mature and these investors get more comfortable with the technology, infrastructure and channels for exposure and have a more fully developed investment thesis about these assets,” she added.
As such, pension funds, like other institutional investors, are striving to find investment opportunities. As The New York Times noted, “U.S. Treasuries have been the bonds of choice for safe retirement income. But they could deliver no real return for the next decade.”
Meanwhile, on the positive side, pension funds have long horizons, and they can withstand short-term volatility. Another plus, “Crypto talent is spread uniformly around the world, and we can source that talent,” Liew added.
Fiduciary constraints won’t disappear, of course. Many pension funds represent municipalities, and they are holding many people’s late-life financial well-being in their hands. That’s a lot of responsibility. But you “can’t get a ton of reward if you don’t take on some risk,” Liew said.
A while back, the president of Molnar’s board said, “I understand the need to do this” — the police officers’ pension fund, like most institutional investors, was struggling to grow its money in a continuing low-interest-rate environment — but some officers “are off the reservation,” he claimed.
With the fund’s recent 7.25% rate of returns on its crypto investments, it’s probably safe to assume that some of those officers are back on the reservation now.
Google Pay To Support Bakkt Debit Card
The crypto exchange also chose Google Cloud as its preferred cloud service provider.
Crypto exchange Bakkt said its virtual Visa debit card is now available for use on Google Pay online and in stores.
* Cryptocurrency balances will be converted to fiat to enable transactions to occur, Bakkt said in a statement Friday.
* Bakkt’s Google Pay support follows in the footsteps of Coinbase, which rolled out Apple Pay and Google Pay support for its Coinbase Cards earlier this year.
* The Alpharetta, Ga.-based company, which last month received approval to go public from the U.S. Securities and Exchange Commission, also said it will use Google Cloud as its preferred cloud service as it develops artificial intelligence and machine-learning capabilities.
* Bakkt will build new analytics and geolocation functionality on its platform utilizing Google Cloud tools as well, Bakkt said. Insights generated will expand loyalty redemption options for customers and provide Bakkt partners with consumer behavior data.
* “This partnership is a testament to Bakkt’s strong position in the digital asset marketplace, to empower consumers to enjoy their digital assets in a real-time, secure, reliable manner,” Bakkt CEO Gavin Michael said in a press release. “Additionally, partnering with Google Cloud will enable us to continue to build a best-in-class, innovative platform that can undoubtedly scale to meet the needs of millions of users.”
Citi Loses Top Trading Executive Zhang To Crypto World
Citigroup Inc.’s Matt Zhang is leaving the bank for the world of cryptocurrencies, according to people familiar with the matter.
Zhang will start a fund that trades digital assets and makes venture investments in crypto companies, according to one of the people, who asked not to be identified discussing non-public information. Zhang is seeking to raise more than $1 billion for the fund, the person said.
A 14-year veteran of Citigroup, Zhang created the firm’s spread products investment technologies team, or Sprint, which makes bets on financial-technology companies as a way to get a first look at innovations that could reshape debt markets.
The venture has focused on technologies related to trading infrastructure, data analysis, artificial intelligence and machine learning.
Zhang was most recently co-head of Citigroup’s structured products trading and solutions division. With his departure, Chetan Vohra will become sole head of that unit and will also lead the Sprint business, one of the people said.
A Citigroup spokesman declined to comment on Zhang’s departure.
Wild cryptocurrency markets are luring many longtime banking executives away from Wall Street, where company executives have been taking a wait-and-see approach even as their clients increasingly clamor for access to the asset class.
“We’re fairly cautious around crypto as a bank,” Citigroup Chief Executive Officer Jane Fraser said at a conference this week. “We proceed with great caution on that one as to where the value is and isn’t.”
Zhang is at least the second top Citigroup executive to depart for the digital-assets industry in recent months. Christopher Perkins, the former co-head of Citigroup’s futures, clearing and foreign-exchange prime brokerage businesses, was hired in August as a managing partner and president by CoinFund, a blockchain-focused investment firm.
MSCI Warns of ‘Creeping’ Crypto Exposure In Equity Markets
Fifty-two companies with crypto exposure combine for a total market capitalization of $7.1 trillion.
MSCI warned of “creeping” exposure to cryptocurrency in equity markets by 52 companies with some degree of crypto exposure.
* The companies covered by the index provider’s research have a combined market capitalization of $7.1 trillion, Bloomberg reported Thursday.
* The roster includes firms directly involving in the buying and selling of crypto, such as exchange Coinbase, and firms with an allocation of cryptocurrency on their balance sheets, such as business-intelligence software firm MicroStrategy.
* While those two are among the most obvious examples of crypto exposure, MSCI highlighted in a blog post Wednesday that equity investors may be faced with “creeping” cryptocurrency exposure.
* “This can occur when newly listed cryptocurrency companies get added to the indexes that guide their investments, or when companies in which they are already invested, directly or through indexes, announce strategies that include bitcoin or other cryptocurrencies.”
* In particular, the governance of cryptocurrencies may present new challenges to companies and investors, given their decentralized nature.
* “At a minimum, investors may benefit from understanding how managers and directors of cryptocurrency-exposed companies are monitoring developments in these informal governance frameworks. For companies with more significant exposure, investor interests may be better served by being more actively involved,” MSCI said.
The ‘Risk-Free’ Crypto Trade Is Back In A Big Way
The closest thing to a risk-free bet has reemerged in the cryptocurrency market as traders — awaiting the launch of the first Bitcoin exchange-traded fund — bid up the price of futures.
The spread between Bitcoin futures and the digital currency’s price offers the widest annualized return in five months, according to data from FRNT Financial. That means the so-called basis trade, whereby a speculator buys Bitcoin in the spot market and sells long-dated futures to lock in the discrepancy between the two prices, has turned back on.
And it’s happening amid a price surge in Bitcoin that’s been bolstered by optimism the Securities and Exchange Commission is poised to allow the first U.S. Bitcoin futures ETF to begin trading soon.
It’s a dynamic that comes back again and again in crypto and is one that is rarely seen in other markets, according to Strahinja Savic, head of data and analytics at FRNT Financial. It’s primarily driven by individual investors, who are using futures for leverage and to make price predictions.
“Crypto is unique in that it has a much higher retail participation versus sophisticated institutional actors, who would normally drive down the exaggerated contango via arbs trades,” said Savic, referring to arbitrage. “Considering the lack of those actors’ participation, relative to other assets, BTC is prone to these aggressive contangos in bull markets — we find this kind of an opportunity to be an extremely underrated and lucrative strategy in crypto.”
Futures typically trade at a premium to spot, a development referred to as contango. Contango and backwardation are terms for curve structures that map traders’ guesses about what a given contract could be worth in the future. Contango means it’s upward sloping, while backwardation means downward.
Futures in contango indicates that the supply of Bitcoin is plentiful because there is no cap on futures open interest, says Steve Sosnick, chief strategist at Interactive Brokers. As long as enough traders post sufficient margin with a clearinghouse, any two counterparties can create a new futures contract by initiating a trade, he said.
Right now, a lot of traders might be betting that a futures-based ETF will be a big forced buyer in the market. Whatever money ends up flowing into the product will have to be employed to buy futures contracts, the thinking goes.
“There is a well-hyped new asset class that has to contractually buy these futures, and traders are adjusting and front-running accordingly,” he said. “It’s quite possible that the market got ahead of itself, which is certainly a risk in the crypto space, but there is clearly a bet being placed that fresh money will be coming into crypto via the futures ETFs.”
To be sure, more traders could look to take advantage of the spread, meaning that it could shrink, says Zhu Su from Three Arrows Capital, a hedge fund.
“You’ll have a lot of capital come in to arbitrage because it’ll get to the point where it’s very attractive. If you can get 6%, 10% on dollars there’s a lot of guys that will want to do that,” said the firm’s co-founder. “It just takes one bank or one participant with a few billion dollars to come in. If you zoom out, it’s not going to be that bad.”
Though it had broken down earlier in the year amid a selloff in crypto prices, the basis trade has been one of the most pervasive in the crypto industry. It’s been known to be widely used by hedge funds thanks to its ability to reliably produce double-digit annual gains.
“The future price is up higher than the spot market and this is where we see a lot of arbitrage plays from the big boys,” Howard Greenberg, president of the American Blockchain and Cryptocurrency Association in D.C. and cryptocurrency educator at Prosper Trading Academy, said by phone. “They’ll play that spread — they’ll buy the underlying asset at a less expensive price and then bid up the futures, and they’ll sell off into the strength of the market.”
Crypto Finserv Firm Bakkt To Soon Trade Publicly On New York Stock Exchange
Starting Oct. 18, Bakkt’s common stock and warrants will be listed on NYSE under the ticker symbols “BKKT” and “BKKT WS,” respectively.
Bakkt Holdings, the digital assets management arm of Intercontinental Exchange (ICE), has announced it will soon become a publicly traded company on the New York Stock Exchange, starting Oct. 18.
The public listing for Bakkt comes as a result of a merger with VPC Impact Acquisition Holdings, a Chicago-based special purpose acquisition company. According to an official statement, a shareholders meeting regarding the merger saw approximately 85.1% approval for the business combination:
“Upon closing, the combined company’s Class A common stock and warrants are expected to begin trading on the New York Stock Exchange (“NYSE”) under the ticker symbols “BKKT” and “BKKT WS” respectively.”
Additionally, the business combination resulted in gross proceeds of approximately $448 million to Bakkt, which it plans to reinvest in growing the company’s capabilities and partnerships.
Just last week, Bakkt announced a partnership with Google to allow the purchase of goods and services using Bitcoin (BTC) and other cryptocurrencies via the Google Pay platform. According to Bakkt CEO Gavin Michael, the partnership “is a testament to Bakkt’s strong position in the digital asset marketplace, to empower consumers to enjoy their digital assets in a real-time, secure, reliable manner.”
Back in March, Bakkt launched a payments app that allows users to make purchases via cryptocurrencies, prior to which the exchange offered BTC futures contracts exclusively to accredited investors.
Meanwhile, mainstream crypto adoption in the United States continues to see increased support from lawmakers as a new bill demands a safe harbor for certain token projects.
A new draft bill proposed by Representative Patrick McHenry, “Clarity for Digital Tokens Act of 2021,” suggests an amendment to the Securities Act of 1933 to allows projects to offer tokens without registering for up to three years.
The bill was based on an older initiative from SEC Commissioner Hester Peirce highlighting that “safe harbor could be the most groundbreaking development for the U.S. cryptocurrency market to date.”
Pension Fund For Texas Firefighters Reportedly Allocates $25M To Bitcoin And Ether
The fund is responsible for the benefits of more than 6,600 active and retired firefighters as well as surviving family members.
The pension fund for firefighters in Houston has allocated part of its $4 billion portfolio towards crypto.
According to a Thursday Bloomberg report, the Houston Firefighters’ Relief and Retirement Fund used the New York Digital Investment Group, or NYDIG, to execute the purchase of $25 million in Bitcoin (BTC) and Ether (ETH).
Public records through the Texas comptroller’s office show the pension fund held more than $4.1 billion in total net assets as of June 2020, meaning the group has allocated roughly 0.6% of its portfolio towards digital assets.
“We have been studying this as an asset class to add to our investment portfolio for quite some time,” said the fund’s chief investment officer Ajit Singh. “It became an asset class we could not ignore anymore.”
“As more and more institutional adoptions happen, there will be more and more dynamics that develop for supply and demand. And having physical assets — actual tokens — gives us in the future the possibility of income generation potential.”
The fund is responsible for the benefits of more than 6,600 active and retired firefighters as well as surviving family members. According to the group, more than half of the fund is invested in common and private equity but also includes domestic stocks, international stocks, bonds, cash and real estate.
In June, retirement plan provider ForUsAll gave its clients the option to invest up to 5% of their portfolio assets in cryptocurrencies, saying United States citizens could be at a “disadvantage” if they are not given the option of accessing crypto assets in their retirement plans. Earlier this year, Grayscale also reported that it had seen pension funds and endowments investing actively into its funds with exposure to crypto.
$2.6 Billion Quant Hedge Fund Joins The Rush To Crypto
When Chris Taylor’s money-printing Dogecoin trade was wiped out in the $650 billion crypto crash back in May, the stakes were low. The 37-year-old was simply having fun YOLO trading from his personal account.
But now things are getting serious as Taylor helps spearhead a digital-currency initiative in his day job as senior investment partner at GSA Capital.
The $2.6 billion quant hedge fund is joining the likes of Steve Cohen and Alan Howard looking to profit from the famous volatility and inefficiencies across the now-$2.6 trillion market. That’s as long as Taylor and his fast-money peers can avoid getting crushed in the next crash.
“Our approach has always been: Let’s try to launch quickly — try to capture as much upside as we can now — because we know that at some point crypto hype will die down,” the hedge fund manager says in an interview at GSA Capital Partners LLP’s London office in Mayfair.
The 16-year-old fund is deploying the kind of systematic trades that have helped it net profits in the traditional world of stocks, derivatives and currencies. GSA started formally trading crypto assets in August, per Taylor.
The University of Cambridge-educated mathematician declined to reveal the size of capital commitments but says it’s a modest part of the firm’s International Fund, with the potential to increase if performance is strong.
GSA is in the process of hiring its first head of crypto trading and operations. Taylor will continue his work on crypto as well as longstanding duties including overseeing a trend-following strategy in traditional assets.
It’s a well-timed move, with the bull market revival lavishing easy rewards for market-neutral quant trades beloved by hedge funds like GSA. Bitcoin has rallied more than 40% this month alone to trade at records after the launch of an exchange-traded fund tracking futures on the world’s largest digital currency.
In turn, the funding rate for financing long positions in Bitcoin futures — a popular trade in bull cycles — has returned to levels last seen before the May selloff on the largest exchange Binance, Bybt data show. GSA is duly taking advantage of the discrepancy by going short the derivatives and long the spot, a classic arbitrage trade and the closest thing to a free lunch in the crypto market.
GSA, which started as the Global Statistical Arbitrage desk at Deutsche Bank AG, is also applying the quant technique to crypto futures in a bid to exploit price patterns.
That’s not to say executing systematic trades is smooth sailing. Far from it. There are no one-stop-shop prime brokers, while exchanges are nothing like their Wall Street equivalents. For instance, GSA has to put down excess collateral because platforms can liquidate positions with no warning.
As Taylor himself learned the hard way earlier this year, these liquidations can be so extreme that even profitable wagers, such as his Dogecoin position, can be closed if exchange operators are struggling to absorb the negative balances of other traders when the market crashes.
Then there’s custody. With the industry notoriously prone to hacks, many investors store their tokens in cold storage or wallets disconnected from the internet for safekeeping. Yet hedge funds still need to transfer them to exchanges for trading. There still isn’t a great solution to balance liquidity with security, according to Taylor, who’s using platforms like Twitter, Telegram and Discord to get to grips with his new gig.
“It’s interesting to be involved in something new where you feel that there aren’t a lot of people you can go to to explain how it’s done, and there aren’t existing procedures for how the operational set-up should look,” he said.
Cowen CEO Expects Institutions To Adopt Crypto In Coming Years
Institutional investors yet to touch cryptocurrencies will begin to involve themselves with the tokens more heavily in the next decade, according to Cowen Inc. Chief Executive Officer Jeffrey Solomon.
“We’re certainly seeing an up-tick in people that are interested in doing it — the ‘crypto-curious,’ I call them,” Solomon said Friday in an interview on Bloomberg Television. “We’ve seen mostly retail involvement and a little institutional involvement, but we think we’re in the very, very early stages of significant participation by institutions.”
One limiting factor is whether firms will be living up to their fiduciary responsibilities by exposing themselves to the currencies, which are known for volatility, Solomon said.
Cowen announced in May that it would offer custody services for digital currencies. Bank of New York Mellon Corp. and U.S. Bancorp are among companies that have taken similar steps, partnering with financial technology firms.
Customers Bank Veers Into Crypto With Transfer Token, $1.5B In Crypto-Related Deposits
The Pennsylvania-based bank, 0.52% the size of JPMorgan, is making a a big play for business clients from the crypto sector.
Pennsylvania-based Customers Bank has started onboarding its first cryptocurrency businesses, offering those firms use of a digital asset payments platform plus the bank’s own internal digital fiat token.
As such, Customers Bank will compete with Silvergate in California, Signature in New York and Massachusetts-based BankProv in offering crypto firms accounts, as well as a blockchain-based platform for clients to instantly send each other dollars 24/7.
The Tuesday announcement makes good on Customers’ promise to serve the crypto industry back in August of this year.
The bank, a $19.1 billion subsidiary of Customers Bancorp, said it had onboarded cryptocurrency trading firms Genesis Trading (which shares a parent company with CoinDesk), Blockfills, GSR and SFOX.
“We’re proud to be attracting these best-in-class organizations,” Customers Bank CEO Sam Sidhu said in a statement. “And are confident that we can provide the much-demanded fiat currency ‘on and off ramp’ for institutional clients in the crypto ecosystem.”
The Customers Bank-branded CBIT token and a digital fiat payment system dubbed TassatPay bear some similarity to JPMorgan’s Onyx blockchain and much fêted JPM coin – despite being just 0.52% the size of the New York-based megabank.
Customers Bank, whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC), announced $1.5 billion of zero-cost deposits from crypto business in its Q3 earnings report issued Oct. 28.
Sidhu said the bank’s digital fiat rails will expand to serve other verticals besides crypto.
“We see very beneficial applications for real-time B2B payments options in commercial real estate, healthcare, hospitality, insurance, accounting, alternative energy, and manufacturing supply chains,” he said.
These Publicly Traded Firms Are Pulling Institutions Into Crypto
With increasing institutional capital flow into the crypto markets, publicly listed digital asset companies offer the best crypto gateway to institutional investors.
Cryptocurrencies have quickly emerged as one of the hottest investment vehicles of the past decade, gaining traction first from retail traders, as seen in 2017, and now from institutional investors.
From being a domain of bedroom coders to a growing financial sector with over $2 trillion in market capitalization, the crypto space has seen a sudden surge in value and continues to attract huge interest from investors.
While crypto assets have proven to be valuable, volatility remains a top concern, especially for institutional players. Sure, any investor can buy some cryptocurrencies and profit from their rising value.
However, investing in established companies that are involved in the crypto and blockchain business is another way of diversifying and gaining from the overall uptake of everything blockchain and crypto-related.
This gives investors exposure to an investment vehicle with a low correlation to the volatile price swings of the crypto market.
Here is a look at some of the top publicly traded digital asset companies available to retail and institutional investors alike.
Coinbase’s direct listing on Nasdaq in April this year was a watershed moment for the entire cryptocurrency market. Boasting as the largest crypto trading volume for a crypto exchange in the United States, Coinbase made its debut on Nasdaq as a publicly-traded company with a valuation of close to $100 billion. Coinbase chose to go with a direct listing as opposed to the conventional initial public offering.
Founded by Fred Ersham and Brian Armstrong in 2012, Coinbase offers crypto trading services to more than 40 million retail users and about 7,000 institutions spread across the globe. While its main source of revenue has been the transaction fees on its crypto exchange, Coinbase hopes to go beyond trading to offer a debit card that allows consumers to spend their digital assets conveniently.
Coinbase also offers a cloud-based digital asset custody service, an asset loan service and a data monitoring service for digital assets on the blockchain.
Microstrategy is a software company with more than 40% of its market valuation invested in Bitcoin (BTC). The company has been increasing its Bitcoin stash over the past year with an accumulative purchase of Bitcoin worth more than $5 billion at current prices.
With more than 100,000 BTC to its name, Microstrategy has gone from relative obscurity in the world of finance to a crypto giant and a well-known firm on Wall Street. The company’s CEO, Michael Saylor, a Bitcoin evangelist, routinely touts Bitcoin on social media as a revolutionary invention and has also been vocal in defense of the company’s move to invest aggressively in crypto.
Recently, MicroStrategy sold $1 billion worth of its stocks holdings to inject the proceeds in acquiring more Bitcoin. Since the company announced its debut in Bitcoin, Microstrategy’s stock price has soared by more than 400%.
Riot Blockchain is a U.S.-based Bitcoin mining and publicly listed company that uses a multitude of specialized machines called application-specific integrated circuits to mine Bitcoin. Recently, the Bitcoin mining firm dove deeper into the business with the purchase of a Bitcoin hosting facility in North America called Whinstone US.
In a press release, Riot Blockchain’s CEO Jason Les mentioned that “with Whinstone’s preeminent infrastructure and best-in-class construction, development and operations organization, Riot is extremely well-positioned to increase the scale and scope of its operations.”
Whinstone’s energy management strategy will reportedly help Riot Blockchain manage its Bitcoin mining energy costs, enabling access to reliable and responsive power to further support the Bitcoin network.
Riot Blockchain receives its mining machines from Bitmain and hosts more than 35,000 Antminers, leading to a hash rate capacity of 3.8 EH/s.
Although PayPal stock is not purely a crypto play, the company opened its doors to digital currencies, allowing its customers with personal accounts to buy, sell and hold several cryptocurrencies including Bitcoin. Customers on PayPal can go as far as checking out with crypto even as the company continues to test out the concept of allowing crypto on its platform.
Given that digital assets and crypto are the future of finance, PayPal’s adoption of the crypto is a move to increase the usage of its app among retail investors, as well as facilitate more transactions between customers and merchants.
Furthermore, the company’s CEO has mentioned crypto several times, adding that its crypto functionality is not a speculative move but rather a developmental one that will offer customers more choices when shopping online.
Marathon Digital Holdings
Marathon Digital is a Nasdaq-listed company that has seen its stock price rally recently due to its Bitcoin purchases and mining activities. In May this year, the company released a letter of intent to collaborate with Compute North in hosting a Bitcoin mining data center with a 300-megawatt capacity.
So far, the company has seen tremendous progress with its revenue rising by 1,444% year-over-year with a host of over 70,000 Bitcoin miners setting its hash rate to 10.37 EH/s. Given the rising Bitcoin mining energy concerns and the recent developments, Marathons Digital expects its operation to achieve carbon neutrality by up to 70%.
Marathon Digital’s balance sheet has about 18.3 % of its total valuation invested in cash and Bitcoin, and continues to purchase more Bitcoin as well as store the crypto it produces at much larger percentages. According to reports, Marathon Digital is capable of mining upwards of 50 Bitcoin per day, setting the company’s value over $5 billion.
Hut 8 Mining
Hut 8 Mining features a unique approach to Bitcoin mining with a business model that is designed with scalability in mind. Believed to be one of the most promising Canada-based mining and blockchain infrastructure firms, the company has mined 264 Bitcoin in September alone, averaging about 9.11 BTC mined per day.
The company has adopted a long-term Bitcoin hold strategy where 100% of the self-mined Bitcoin is deposited in custody as the company advances toward its goal of holding 5,000 self mined Bitcoin by the end of the year. As of Sept. 30, Hut 8 Mining has accumulated 4,724 Bitcoin in custody.
EQONEX Group is a digital asset firm offering financial advisory services. This Nasdaq-listed company has since rebranded with the inclusion of additional services such as a crypto exchange, a custody platform and a multi-venture trading service, as well as an over-the-counter (OTC) offering.
With a Nasdaq listing in September 2020, EQONEX has since emerged as the first crypto-related firm to be listed on Nasdaq. So far, its crypto exchange has been growing, hitting a 24-hour trading volume of over $260 million and a 30-day volume of $4.5 billion.
Although it is not one of the biggest crypto exchanges, EQONEX touts its regulatory compliance and the fact that it doesn’t make markets, thus avoiding the conflict of trading against its clients.
Growing Institutional Interest
Investing in stocks from digital asset companies offers a distinct advantage, whereby the investor is not directly exposed to the volatile market movements that riddle the rest of the crypto market.
Investing in crypto-related businesses also grants an investor the convenience of avoiding the complexities that come with buying and safely storing digital assets, all while exposing the investor to the upside of the crypto and blockchain industry.
Whether investing directly or indirectly, it has never been easier for institutional capital to flow into the crypto and digital asset market, given the increasing number of digital asset companies whose stock is traded publicly on stock exchanges such as Nasdaq.
Even companies such as Nvidia and AMD are increasingly contributing to the crypto and blockchain industry thanks to the use of their graphical processing units in mining crypto. These are just a few picks of the many publicly listed digital asset companies that investors can look to when it comes to traditional routes of investing in crypto.
Novogratz’s Crypto Firm Galaxy Digital To Launch US Stock Listing In 2022
After initiating the BitGo acquisition in May, Galaxy Digital expects to close the deal in the first three months of 2022.
Galaxy Digital Holdings, Mike Novogratz’s cryptocurrency investment management firm, is not going public in the United States in late 2021 as the firm previously planned.
Galaxy Digital has postponed plans for a U.S. listing, now expecting to go public in the first quarter of 2022, the company’s founder and CEO, Novogratz, announced Monday.
“We look forward to our U.S. listing and the close of our BitGo acquisition, which we now expect will occur in the first quarter of 2022,” he said.
The U.S. Securities and Exchange Commission is yet to approve Galaxy Digital’s potential listing on an American exchange, Galaxy reportedly said.
Novogratz’s crypto investment manager is also still in the process of closing the acquisition of cryptocurrency custodian BitGo after initiating the purchase earlier this year. The acquisition is expected to close in the first three months of 2022.
Galaxy Digital officially announced the company’s plans for a U.S. listing in May, with Novogratz expecting the firm to go public in the U.S. in the second half of 2021. The firm did not immediately respond to Cointelegraph’s request for comment.
One of the largest crypto investment companies in the world, Galaxy Digital has already been trading on a major Canadian stock exchange. The company debuted its first-ever listing on Toronto’s TSX Venture Exchange in August 2018 after acquiring local crypto startup Coin Capital.
Trading under the ticker symbol GLXY, Galaxy Digital’s stock has posted significant growth recently, surpassing $40 for the first time last week. At the time of writing, the stock is trading at $41, up around 0.2% over the past 24 hours, according to TSX data.
The news comes amid Galaxy Digital announcing its Q3 financial results on Monday. Its net comprehensive income surged to as high as $517 million from $42 million over the same period last year. Galaxy Digital also reported that it managed $3.2 billion in assets as of October 2021.
“As the crypto economy continues to mature and adoption trends accelerate, driving both asset price increases and greater quantities of institutional capital into the space, I have never been more bullish about the future of our Company,” Novogratz added.
OCBC Bank Mulls Setting Up Crypto Exchange: CEO
Southeast Asia’s second-largest bank is looking into a digital asset exchange to satisfy customer demand.
Oversea-Chinese Banking Corporation (OCBC Bank) is mulling creating a crypto exchange, the bank’s CEO Helen Wong said in an interview with Bloomberg Television today.
* “We are looking at it and seriously there are some work being done in the bank,” Wong said, adding that the bank wants to address customer needs “in a safe manner.”
* At the end of last year, Singapore-based OCBC had $121 billion in assets under management, making it the second-largest bank in Southeast Asia.
* OCBC rival DBS launched a crypto exchange in December 2020. DBS Vickers, the bank’s brokerage arm, received a license to offer crypto services from the Monetary Authority of Singapore in October.
Cloud Software Firm Phunware Buys 398 More Bitcoins For About $24M
The company now owns about 529 bitcoins in total, according to a statement.
Mobile cloud software company Phunware (PHUN) announced Monday that it has bought an additional 398 bitcoins for about $23.8 million in cash at an average price of about $59,917 per bitcoin, including fees.
* The Austin, Texas-based firm said it now holds about 529 bitcoin at an average purchase price of approximately $60,191 per bitcoin, according to a statement Monday.
* Phunware said last week it would start processing initial issuances of PhunCoin, available for trading on Securitize. In late October, the company said it would begin accepting bitcoin as a form of payment.
Investors Are Piling Into Crypto Startups—Just Not In China
For the first time in four years, venture investors are backing more crypto and blockchain startups in the U.S. than they are in Asia—a sign that China’s crackdown on alternative currencies has chilled the country’s upstart industry.
Though the country was once a crypto capital, China’s new restrictions on tech companies have driven down the number of cryptocurrency and blockchain startups getting funding, according to year-to-date data collected by research firm CB Insights.
Beijing forbid crypto mining and banking operations this spring and then banned all transactions in September, forcing many founders to shutter operations or relocate.
“We’ve basically seen no deals in China,” said CB Insights analyst Chris Bendtsen. “In Asia, the companies are really based in Hong Kong, India and Singapore.”
But as China’s cryptocurrency and blockchain companies fade, in the rest of the world investment dollars have increased dramatically. The fourth quarter of 2021 is already the biggest ever for crypto startup investing, “and we’re not even into December,” Bendtsen said. Globally, the value of venture investments in the industry surged from $3.1 billion in 2020 to $21.3 billion through Nov. 30—a more than sixfold increase.
The number of deals in China fell by more than half from 2020, to 41 so far this year. Meanwhile, the total value of funding to crypto and blockchain startups in the country also fell by about a third to $214 million. In the U.S., it climbed more than sevenfold to $10.9 billion across 417 deals.
The global increase is a signal that the sector is finally edging into the mainstream. Investors in venture capital, private equity and corporate venture capital are “all believers now, and we’re only going to see this trend continue next year,” Bendtsen said.
Indeed, generalist venture firms like Bain Ventures are in the process of raising distinct crypto funds. Others, like Lightspeed Venture Partners, are planning to build expertise in the field. “In the next few years every partner at Lightspeed will become fluent in crypto,” said Lightspeed’s Amy Wu. “It’s going to be the internet of our generation.”
David Pakman, a longtime partner at Venrock who joined crypto firm CoinFund in October as managing partner, said he’s seen interest surge since Coinbase Global Inc. went public in April. “That woke up a lot of the traditional investors,” he said, adding that family offices and endowments have been among those to invest this year.
For example, the Harvard and Yale university endowments both backed the new VC fund Paradigm, according to the Financial Times. In November, Paradigm closed a $2.5 billion fund—the largest yet for a crypto-only firm.
Gemini Partners With Colombia’s Biggest Bank For Crypto Trading
The partnership will allow Bancolombia customers to trade a number of popular cryptocurrencies including BTC, ETH and LTC.
New York-based crypto exchange Gemini has announced that it will be expanding into Latin America through an upcoming partnership with Colombia’s largest bank, Bancolombia.
The partnership will take effect on Dec. 14, and will permit customers from Bancolombia to trade four crypto assets: Bitcoin (BTC), Ether (ETH), Litecoin (LTC) and Bitcoin Cash (BCH).
A limited number of users will be able to buy crypto directly from their Bancolombia bank accounts through the Gemini exchange, which will provide crypto-specific infrastructure for exchange and custody of assets. It remains unclear whether the users will be able to withdraw the crypto holdings directly from their accounts.
In a Monday announcement about the partnership, Gemini stated that it “serves as an important step toward the strategic expansion of Gemini’s presence in Latin America.”
“We believe that crypto can play an important role in the development of Latin America as interest in blockchain and innovative technologies proliferates throughout the region.”
The partnership will run as part of a year-long pilot program run by Colombia’s financial regulator, the Superintendencia Financiera de Colombia (SFC). The regulatory sandbox, “la Arenera” was approved by the Ministry of Finance and Public Credit in September 2020.
In January, the SFC announced that it had chosen nine out of fourteen crypto exchanges that had applied for the project, including Gemini, Binance and the Mexican exchange Bitso.
Since El Salvador adopted BTC as a legal tender on Sept. 7, Latin America has made strides towards mainstream crypto adoption. In October, CEO of multicurrency investment platform Uphold J. P. Thieriot told Cointelegraph that Latin America stands to “benefit the most from crypto.”
Gemini currently operates in over 60 countries, including Argentina, Brazil, Chile, El Salvador, Panama, Peru and Uruguay in Latin America.
Bancolombia operates in Colombia, Panama, Guatemala and El Salvador. According to an internal report from last year, it has 17.8 million users.
In March, Colombia’s oldest bank Banco de Bogotá also announced that it would be piloting crypto services as part of la Arenera. A year prior in March 2020, Cointelegraph reported that Latin America is the region with the third-largest number of crypto users in the world.
Hedge Fund Veteran Citrone Is The Latest To Profit From Bitcoin Bets
Add a new name to the rapidly rising number of Bitcoin profiteers.
Longtime hedge fund manager Rob Citrone, best known for his macro-trading prowess over two decades at Discovery Capital Management, sold his Bitcoin earlier this year when it surged to $45,000 from his initial investment at $15,000, he told investors at an event this week.
He also said he jumped back in after Bitcoin fell to $30,000 in July, according to an investor who attended the event, who asked not to be named because the discussion was private.
Citrone, who manages about $2.4 billion, declined to comment.
Cryptocurrencies are gradually winning acceptance with macro hedge funds. Brevan Howard Asset Management and Paul Tudor Jones are among those betting on rising prospects for digital markets. Brevan Howard is one of the first mega funds to start raising money for a dedicated digital-assets strategy.
It’s not clear how much money Citrone invested in Bitcoin. Last year, when the cryptocurrency was last as low as $15,000, his hedge fund gained more than 55%, according to an investor document. The fund is up just over 19% this year.
Citrone, who was previously a money manager at Julian Robertson’s Tiger Management, also predicted an impending correction in the U.S. stock market, and said the first quarter of next year is set to be difficult for riskier assets. Emerging markets and smaller companies in the U.S. will correct even more, he said at this week’s event.
Earlier this month, Citrone said that U.S. central bank rates are going to rise and advocated betting on an increase via March 2023 eurodollar futures.
Visa Announces New Crypto Consulting Service For Merchants And Banks
Visa’s new crypto consulting services to push for mainstream adoption of cryptocurrencies.
Payments giant Visa is launching new consulting and advisory services in a move to help its clients navigate the world of cryptocurrencies.
The firm said on Wednesday that its crypto advisory practice, housed within its consulting and analytics division, will offer advice to financial institutions, retailers and other firms on everything from rolling out crypto features and exploring nonfungible tokens to developing wallets for central bank digital currencies.
According to Visa, part of banks’ interest in cryptocurrencies is in remaining competitive. Citing a recent in-house study, Visa said that “40% of crypto owners surveyed report they would be likely or very likely to switch their primary bank to one that offers crypto-related products in the next 12 months.”
Per Reuters, American financial services company UMB is a client of Visa’s crypto advisory services.
“We came to Visa to learn more about crypto and stablecoins and the use cases that are most relevant for our retail and commercial business lines,” said Uma Wilson, executive vice president of UMB Bank.
The move marks Visa’s latest attempt to push deeper into the cryptocurrency industry, with the firm having filed for numerous blockchain-related patents in the past. Visa’s research team is also working on a “Universal Payment Channel” project, which is a blockchain interoperability hub connecting multiple blockchain networks and allowing digital assets to move from various protocols and wallets.
Visa is one of the many payments processors that has entered the cryptocurrency business in recent years. Its rival, Mastercard, recently rolled out crypto-linked payment cards throughout the Asia-Pacific region, while online payments giants PayPal launched a new consumer app for crypto, savings and direct deposits earlier this year.
Wall Street Finally Learns It Can’t Ignore Crypto And NFTs
We look back at our defining events of the year and the stories that captured them.
If you had asked people at the beginning of the year what cartoons of apes and the U.S. Constitution had in common, the result would have probably been a lot of blank stares. The answer is now clear: crypto.
Digital currencies have been around for a while, but 2021 was the year the wider crypto world made its mark. Its “memeification” and pop culture normalization happened at a pace that detractors found baffling and that true believers argued was still too slow. As it gained another raft of high-profile supporters, it also captured the attention of Wall Street as a force that could no longer be ignored—and of regulators.
Those in the know sometimes divide crypto into several different categories. There are the coins (of which Bitcoin remains the most known; it was even adopted amid controversy as legal tender in El Salvador) and the tokens (including the non-fungible ones—or NFTs—that have attracted the attention of celebrities and artists ranging from Martha Stewart to Paris Hilton).
Then there’s the technology called the blockchain, which acts as a tamper-proof ledger for storing and retrieving digital files. That leaves the miners: techies overseeing giant “farms” of computer hardware that solve mathematical problems to generate coins.
Star quarterback Tom Brady signaled his debut as a Bitcoin believer by changing his Twitter avatar to a picture that included glowing, red eyes, a visual trait shared by another high-profile crypto fan, Senator Cynthia Loomis, a Wyoming Republican. In June, Brady and his wife, Gisele Bündchen, acquired a stake in FTX, a high-profile crypto firm founded by Sam Bankman-Fried.
Brady also co-founded a company called Autograph, which is a platform for digital sports collectibles. These include NFTs, which are representations of assets that live on the blockchain. Offerings include animated videos of gymnast Simone Biles vaulting through the air and digital representations of Tiger Woods’s autograph. Some of the higher-priced ones also grant VIP access to real events.
Perhaps the best-known NFTs take the form of pictures of apes. These simians, some of which are depicted smoking cigarettes or wearing Hawaiian shirts or leather jackets, have made multimillionaires of their creators, known collectively as the Bored Ape Yacht Club.
Owning an NFT of one of these apes, which these days sell for a minimum of $200,000, signals that you belong to an exclusive internet society that counts Snoop Dogg and Jimmy Fallon among its members.
Apes aren’t the only animal popular with the crypto set: In 2021, dogs were everywhere, too. The SHIB token launched last August as a joke, a riff on so-called Dogecoin—which itself started as a parody based on a popular meme featuring a Shiba Inu.
A single SHIB trades for about $0.000037, meaning you could buy a million of them for less than $50. These “dog coins” have attracted significant attention from retail investors, despite (or perhaps because of) their inherent volatility and tendency to swing wildly in price on the basis of cryptic tweets from Elon Musk.
The crossover between digital assets and the real world isn’t limited to animals or athletes. Not even the U.S. Constitution is safe from digital disruption. Over the course of a week in November, a group of investors raised the equivalent of nearly $50 million to bid on a print of the Constitution that was up for auction at Sotheby’s.
The crypto team lost the auction to billionaire hedge fund manager and Bitcoin skeptic Ken Griffin. Perhaps the lesson of 2021, then, is that while crypto talks, fiat still walks.
Barcelona, Feb. 23. Bitcoin, the world’s largest digital currency, soared to its latest record in November before a recent drop.
Nadvoitsy, Russia, March 18. The Bitcoin network consumes a lot of electricity. By the end of this year, it looks set to have used as much as Pakistan.
New Delhi, March 25. A health worker takes a blood sample to demonstrate smart Covid-19 testing. The storage of medical data on a blockchain network in real-time was undertaken by the Indian government.
Sydney, May 17. A former investment bank trader who goes by the TikTok nom de guerre Pablo Heman has amassed more than 370,000 followers. He promotes videos like how to turn $1,000 into $1 million by trading cryptocurrencies.
Safety Harbor, Florida, May 17. This year saw the rise of the thrill-seeking amateur trader, goaded by social media and prowling for profits.
Miami, June 4. Billed as the biggest Bitcoin event in the world, the two-day conference brought a sell-out crowd of over 12,000 attendees.
Washington, D.C., July 22. Gary Gensler was sworn in as the chairman of the SEC on April 17. He signaled that his deep interest in crypto doesn’t mean the hands-off oversight that many enthusiasts would like to see.
San Salvador, El Salvador, Sept. 15. The Latin American country became the first nation to adopt Bitcoin as legal tender. Anti-government protesters feared it would bring instability and risk.
New York, Nov. 2. Vignesh Sundaresan, also known as MetaKovan, spent $69.3 million on a Beeple non-fungible token, or NFT, earlier this year. The sale helped bring attention to the burgeoning market.
Istanbul, Nov. 8. Bitcoin has succumbed to the risk aversion sweeping across financial markets in the wake of the omicron Covid-19 variant.
Even The Smartest Investors Fall For Crypto FOMO
Regulation is coming. Freewheeling trading venues will have to adjust to a less hospitable world — and so will those throwing them money.
One of cryptocurrency’s spiritual forebears, Timothy C. May, predicted in the 1990s that untraceable digital cash would allow online casinos, bank secrecy and money laundering to flourish. Although laws would be dodged, he said, the individual anonymity and freedom would be worth it — at least, until the inevitable government backlash.
This cycle is playing out almost three decades later, as regulators take a fresh crack at the $2.4 trillion crypto sector that’s ballooned largely out of their reach.
Crypto executives were grilled by U.S. lawmakers on Wednesday after a series of probes and fines into trading platforms amid a post-Covid digital gold rush. The bosses acknowledged the need for more oversight but warned that draconian rules would chase firms overseas.
The march toward more regulation is underway, and for good reason. While the execs defended their work policing bad actors, for the most part, anti-money laundering standards and client identification controls still look patchy.
One survey of 16 platforms in March found that only four were subject to “significant” rules related to trading. Exchange activity primarily takes place in offshore jurisdictions. Binance, with no formal head office, is described as being “everywhere and nowhere.” Theft, fraud and hacks are rife.
Yet what’s more unnerving is the pace at which sophisticated investors — not just cyber-punters eager to make a buck — have thrown cash at trading venues regardless. Venture capitalists have invested more than $27 billion in crypto startups this year, according to PitchBook, including a $1 billion funding round for Bahamas-based FTX.
In May, a firm backed by billionaires Peter Thiel and Alan Howard injected $10 billion of digital assets and cash into Gibraltar-licensed firm Bullish Global. Binance narrowly failed to raise $100 million earlier this year; it’s trying again.
VCs obviously have experience with risky bets on firms that disrupt the rules. It’s a tried-and-tested template: Move fast, break things and then ask for forgiveness. Regulation is always catching up. Europe’s gig-economy rules targeting the likes of Deliveroo and Uber have only come after years of the firms’ empire-building, for example.
Still, it seems rather brave for VCs to be diving head-first into a crypto market with opaque actors and enough financial risk that the Bank of England compares it to the 2008 financial crisis (itself a product of “innovation” in mortgage finance).
And the “cypher-punk”-meets-Silicon-Valley enthusiasm has reached institutional investors who are not VCs. Many seem to be tossing aside the kind of counterparty risk management they would rigorously apply in traditional markets just to get a slice of crypto’s potentially vertiginous gains.
Last year, crypto exchange Binance — which this summer was hit with regulatory warnings around the world — reported a 70% increase in institutional clients onboarded. Some hedge funds only decided to leave Binance “a bit” after the warnings.
It’s time for investors to question whether they’ve allowed the Fear Of Missing Out to take over. “The legal risk of posting funds within much of this ecosystem cannot be understated,” warns Martin Finnegan, partner at Punter Southall Law.
While a regulated venue like the Chicago Mercantile Exchange is designed to guarantee terms of trade and eliminate counterparty, settlement and default risk, unregulated crypto venues have more conflicted roles combining brokerage, safekeeping and lending.
Trade association FIA has said that a “significant” amount of activity on unregulated platforms could be wash trading and that basic market data can’t be trusted.
Regulation is already prompting market shifts. New exchanges see playing by the rules as a competitive advantage. Archax, a London-based exchange that it says is regulated by the U.K. FCA as a multilateral trading facility, plans to launch in January.
Swarm describes itself as the first DeFi platform supervised by Germany’s BaFin. Binance and FTX are investing in regulated platforms; they’ve both shelved some products.
These shifts won’t answer all questions for investors trading crypto. Bitcoin will still have a questionable environmental footprint in an ESG-conscious world; its price tag will still inspire almost scholastic debates over whether it’s digital gold, a proxy for equities, or something else entirely.
And central-bank digital currency experiments such as those of France and Switzerland will keep advancing, with potentially very disruptive results.
But as regulators try to keep a leash on cyber-speculation, investors should realize that they also have to adjust to a less hospitable world for freewheeling platforms — perhaps sooner than they think.
KKR Leads $350M Raise For Crypto Custody Bank Anchorage Digital
The raise marks the first time investment giant KKR directly invests in a cryptocurrency firm.
Major cryptocurrency custody bank Anchorage Digital has closed a fresh funding round, bringing its valuation to over $3 billion.
Anchorage Digital announced on Wednesday that it had raised $350 million in a Series D funding round led by equity investment giant KKR.
According to the announcement, this is the first time for KKR to directly invest in equity in a company in the crypto industry. The company invested through its Next Generation Technology Growth Fund II, which is dedicated to developing equity investment in the technology space.
“As a pioneer in enabling institutional investors to access digital assets, Anchorage has built a best in class, institutional-grade digital asset platform that combines the best practices of both modern security and usability,” KKR senior leader of technology growth equity team Ben Pederson said.
The new raise also included a wide number of investors both in traditional finance and the cryptocurrency industry, including companies such as Goldman Sachs investment bank and Sam Bankman-Fried’s crypto firm, Alameda Research. Other investors include venture capital firm Andreessen Horowitz, BlackRock, Blockchain Capital, Delta Blockchain Fund, PayPal and Kraken.
The new funding will help Anchorage Digital further expand its infrastructure and product offerings as well as continue growing its headcount, which has already increased by 175% in 2021.
“This funding positions Anchorage Digital to meet the unprecedented institutional demand for this rapidly evolving market,” Anchorage Digital co-founder and president Diogo Mónica said.
Anchorage became the first crypto firm to receive a charter from the United States national bank regulator, the Office of the Comptroller of the Currency, in January 2021. The firm subsequently raised $80 million in a Series C round led by Singapore’s sovereign wealth fund GIC.
SBI Holdings Invests In Singaporean Crypto Exchange Coinhako
Coinhako received regulatory approval from the Monetary Authority of Singapore just a month before the SBI funding.
Tokyo-based financial services giant SBI Holdings announced a joint investment in Coinhako, Singapore’s first licensed crypto exchange approved by the Monetary Authority of Singapore (MAS).
The Coinhako investment was made via a fund jointly set up by SBI and Switzerland-based Sygnum Bank, namely, the SBI-Sygnum-Azimut Digital Asset Opportunity Fund, according to the notice.
Speaking to Cointelegraph, an MAS spokesperson highlighted the importance of seeking licensing approvals for crypto businesses:
“MAS’ approach to regulation under the Payment Services Act seeks to facilitate innovation while ensuring that adequate controls are in place to address key risks such as money laundering and terrorism financing.”
Coinhako became the first crypto-asset exchange from Singapore to get in-principle approval from MAS to conduct Digital Payment Token services, the same license application that Binance withdrew on Monday. In this regard, MAS spokesperson told Cointelegraph:
“Applicants are able to withdraw their applications should they see fit, upon which those who are operating under the exemption will be required to cease providing regulated payment services. Binance Asia Services has provided MAS with a plan for the orderly cessation of its regulated payment services.”
With SBI’s fund infusion and a pre-existing international network, Coinhako plans to “expand our business to other countries in Southeast Asia while being based in Singapore.” According to SBI, the fund will be co-managed by both parties involved with a focus on financial market infrastructure and distributed ledger technology.
As Cointelegraph reported, the listing and promotion of ARMY reportedly violated the boy band’s intellectual property rights.
Going on the offensive, the crypto exchange claimed to have licenses in other jurisdictions, such as Australia, Canada and the United States, announcing:
“We are currently looking into the legal violations in this case, including the cryptocurrency’s infringement on our artists’ portrait rights without permission from or discussion with the agency. We will take legal action against all infringements and violations.”
Sequoia Capital Finally Gets ‘Red-Pilled’ On Crypto Investing
Inside the venture giant’s embrace of all things blockchain.
When venture firm Sequoia Capital changed its Twitter bio this month to misspell the word “build,” include a blockchain reference and sign off “LFG” (crypto-speak for “Let’s go”), people thought it had been hacked.
In reality, the new bio, which stayed up for 16 hours, was a winking reference to a larger shift at the half-century-old firm: Sequoia is serious about crypto.
Like much of the venture industry this year, Sequoia has bankrolled a bevy of startups focused on the cryptocurrency ecosystem and the technology that undergirds it. It’s made 21 such bets in 2021, representing 25% of its total new investments, Sequoia partners told Bloomberg. The firm is also putting its weight behind pro-crypto policies through a policy arm in Washington.
“The conviction on crypto has only increased since I joined Sequoia and it basically broke through over the last year,” said partner Shaun Maguire. He described excitement about the field as a “one-way ratchet” where an investor’s interest goes up “but not down.”
Sequoia’s Alfred Lin said that most of the partners realized the potential of crypto after having their own “red pill” moments, referring to the 1999 blockbuster “The Matrix,” in which characters took a red pill to reveal the truth. Lin said the pace of such revelations accelerated in recent months.
That Sequoia, among the most prestigious names in venture capital, is making such a substantial commitment to crypto marks a pivotal moment for the industry. Blockchain tech is suddenly enjoying mainstream support — and the giant checks that come with it. At Sequoia, it’s a process that started slowly, firm partners say, and then accelerated fast.
Around 2015, Sequoia quietly started making a handful of small bets in the industry through its Scouts program, which gives founders some cash to invest on the firm’s behalf. It also dabbled in the space by investing as a limited partner in specialized crypto funds. Its investments include Polychain Capital, MetaStable and Paradigm.
In the hyper-enthusiastic world of crypto, Sequoia’s relatively low-risk work didn’t do much to fortify its reputation for trendspotting. The firm got famous for its early bets on companies like Apple Inc., Google, Airbnb Inc. and Stripe Inc.
But like most mainstream investors that made fortunes on companies built on older technology, it has been slower to back the still-volatile industry of companies building on blockchain.
Early entrepreneurs of now-giant crypto companies did not consider Sequoia their first stop while fundraising. Instead they gravitated toward competitors like Andreessen Horowitz, which has been publicly tweeting, writing and investing with conviction on the topic since at least 2013.
And even when crypto deals were brought to Sequoia, getting them funded could be tough. Every firm investment requires unanimous support from partners, meaning a single skeptical partner can torpedo a deal. That dynamic resulted in Sequoia passing on one now-highly successful cryptocurrency exchange, Maguire said, declining to identify the company.
In 2018, attitudes were gradually changing. Roelof Botha — a Sequoia partner and former chief financial officer of PayPal — witnessed the excitement when Jack Dorsey’s payments company Square started allowing people to buy Bitcoin. (Botha sits on the board of Square — now called Block Inc.)
Maguire and colleague Michelle Bailhe joined Sequoia over the next couple of years, and while neither was hired as a crypto expert — Sequoia has a generalist team approach — their interest in the space compounded the convictions of several existing partners, including Botha. Around the same time, Coinbase Global Inc. began delivering un-ignorable financial results.
This year, as Sequoia partners gathered on Zoom on Monday mornings to vote on deals, crypto investments were more likely to sail through with the whole team’s support.
Earlier this month, the firm even created an NFT, or non-fungible token, sold it for 200 ETH, and donated the roughly $800,000 in proceeds to a blockchain foundation.
And when the founder of Showtime, a decentralized social network, made a mock Twitter profile for Sequoia reading in part “We help the daring buidl legendary DAOs from idea to token airdrops,” it got adopted as the firm’s actual bio for a day.
When the Founders Fund account took a crack at the firm’s Twitter crypto conversion, Sequoia replied “wagmi” — crypto parlance for “we’re all going to make it.”
Today, Sequoia’s bets touch most corners of a universe of internet businesses known as Web 3, including decentralized finance, identity, gaming and NFTs. Web 3 is the loosely defined concept that involves a decentralized internet relying on blockchain technology, essentially a shared database where digital information is recorded and stored.
Some of Sequoia’s bets, like social blockchain game company Faraway Inc., just launched. Others are more established growth-stage bets, like crypto currency exchange FTX Trading Ltd., valued in October at $25 billion. Bailhe said they all represent elements of what will ultimately be a new internet that’s decentralized, secure and transparent.
“I’m definitely a true believer in the technology and the potential,” Bailhe said. She expects its applications will spread throughout industries. “It’s already in fintech and consumer applications, and it’s seeping into enterprise and health care,” she added.
To support its growing portfolio, Sequoia has quietly built a Washington policy team during the past 18 months to help favorably shape legislation, Maguire said. This team has focused increasingly on crypto and “is talking to regulators on a daily basis,” said Maguire, who compared this moment for crypto regulation to the 1990s adoption of the internet and the positive impact of net neutrality.
Sequoia isn’t alone in embracing crypto investing this year. Global venture investors plowed more than $21 billion into the sector in 2021 — more than the past decade combined, according to research firm CB Insights. Zack Seward, deputy global news editor at crypto trade publication CoinDesk, said many crypto founders are loyal to early sector advocates like Andreessen Horowitz, Union Square Ventures and San Francisco-based crypto-native firm Paradigm, which have backed crypto leaders like Coinbase and Uniswap.
At the same time, new firms are popping up. Andreessen Horowitz crypto guru Katie Haun said this week she would leave the firm to start her own fund.
In general, crypto founders are still less familiar with generalist firms like Sequoia. “Some of these legacy players are late to establish themselves so to a degree they’re now playing catchup,” Seward said. Sequoia’s investors are “clearly trying to position themselves as a bigger player moving forward.”
When Sequoia revamped its fund structure this fall to have an open-ended timeline for selling shares in its companies, the overhaul also created a path for the firm to further amp up its crypto investing. By becoming a registered investment advisor, as Andreessen Horowitz did in 2019, Sequoia was able to ditch the regulations capping crypto investments for venture firms at 20% of a total fund.
Under the new structure, there will be no limit to crypto investing for the firm, opening up the possibility of a dedicated fund devoted to the sector, the strategy adopted by Andreessen Horowitz. Sequoia declined to comment on whether it would raise a separate crypto fund, but Maguire said that doesn’t mean the firm hasn’t discussed it. In the new internet era, there’s not much that’s off the table.
Billionaire Alan Howard Joins Latest $20M Bet On Decentralized Video Network Livepeer
The funding comes five months after Livepeer’s initial Series B round, which also raised $20 million.
Livepeer, an Ethereum-based network that helps startups add live and on-demand video to their products, has raised $20 million in a Series B extension funding round with backing from new investors Alan Howard and Tiger Global, as well as participation from existing investors.
The funding comes five months after Livepeer’s initial Series B round, which also raised $20 million and was led by Digital Currency Group, which is the parent company of CoinDesk.
Howard co-founded Brevan Howard Asset Management, a European hedge fund focused on macro trading, but stepped down from his CEO role in 2019 to focus on his personal investing. He has a net worth of $2.8 billion, according to Forbes.
The new funding will go toward expanding the go-to-market and customer base using the MistServer video software that Livepeer acquired last fall, Livepeer founder and CEO Doug Petkanics said in an interview with CoinDesk.
MistServer is a flexible content delivery technology that helps developers build on a cost-effective infrastructure and scale streaming applications across a wide variety of verticals, including entertainment, events and gaming.
Livepeer’s near-term roadmap includes plans for artificial intelligence-backed smart video and peer-to-peer content delivery, as well as AI-enhanced content moderation, song detection and video fingerprinting.
Livepeer plans to make MistServer widely available to video developers in an open source model rather than the license model typically used in the video industry.
The company’s future plans also include migrating more of its protocol to a layer two solution that would be less expensive for node operators and token holders.
“I think this is going to be the year that Web 3 applications touch millions of consumers. I’m excited for Livepeer to be the video layer that powers a lot of that,” said Petkanics.
Andreessen Horowitz Aims To Raise $4.5 Billion To Invest In Crypto Funds
Last week, A16z reportedly said it would raise $3.5 billion for its VC fund, as well as another $1 billion for Web3 seed investments.
A16z, a VC company with investments in Protocol Labs, Polychain Capital and Opensea among others, is now planning to raise $4.5 billion for its latest fund, which is focused solely on cryptocurrencies, according to a report by U.K newspaper Financial Times.
Last week, Andreessen Horowitz’ venture capital firm reportedly said it would raise $3.5 billion for its VC fund, as well as another $1 billion for Web3 seed investments, with the plans to be announced in March. The firm is ready to eclipse the $2.2 billion it raised in June 2021, which was the crypto industry’s largest at the time.
The first fund will be used for investment in crypto start-ups and projects that are seeking investment for initiatives, while the second fund will be focused on investing in digital tokens and currencies.
Andreessen Horowitz, with almost $30 billion in assets under management, is one of Silicon Valley’s top venture capital companies. The venture fund was one of the first major investors in companies like Skype, Facebook, Twitter and Coinbase. If a16z is successful in attracting investors to raise $4.5 billion, it would become the industry’s largest, surpassing Paradigm’s $2.5 billion in November 2021.
A16z has backed a number of crypto-friendly gaming platforms, most recently Carry1st, which is the firm’s first investment in a startup on the African continent. In October 2021, a high-powered delegation from the VC firm engaged with members of Congress and administration officials in the United States to discuss crypto rules.
Ex-Goldman Bond Trader Builds A $5.6 Billion Crypto Behemoth
* Dan Morehead Calls Crypto More Compelling Than Any Other Trade
* His Pantera Bitcoin Fund Returned More Than 65,000% Since 2013
Plenty of people wish they had bought crypto early, when it was still little more than a curiosity.
Former Goldman Sachs Group Inc. bond trader Dan Morehead was among the few who did, launching his first crypto fund when a Bitcoin cost less than a bag of groceries.
“I was captivated,” Morehead, 56, said in an interview, calling it “the first macro trade that is truly global across all borders.”
As a result, the Pantera Bitcoin Fund has returned more than 65,000% since 2013, and his Pantera Capital Management, once a traditional hedge fund that wagered on macroeconomic trends, oversaw $5.6 billion of crypto assets at year-end. That’s on top of the $6 billion the firm has returned to investors.
There’s always a chance it’ll crash and burn. Bitcoin has tumbled more than 20% to start the year, trading below $37,000 on Friday, well below its November peak of roughly $68,000 — a drop fueled by expectations of rising global interest rates and aggressive moves by central banks to tame soaring inflation.
This is where Morehead’s worlds collide.
Morehead stood out during crypto’s adolescence because he immersed himself in it after a storied career in finance. He started trading bonds at Goldman in the 1980’s, and later worked for hedge fund legend Julian Robertson before launching Menlo Park, California-based Pantera in 2003.
Rising inflation — and how central banks respond to it — will be a big theme of 2022, said Morehead, who previously had wagered on the long-term decline in inflation and yields.
That trade “basically made my career,” he said, “and I think it’s come all the way to the end of that story.”
Morehead expects a reversal of that dynamic to drag on cryptocurrency prices, but it hasn’t dampened his enthusiasm for the underlying technology.
Pantera doesn’t just bet on Bitcoin. It’s venture-capital funds invest in firms supporting the crypto ecosystem, including exchanges such as FTX, Coinbase and Gemini, while the firm’s token funds are putting money to work in blockchain developers. Recently, Pantera has focused on decentralized finance, or de-fi, a movement seeking to supplant the old Wall Street ways of doing business.
“Bitcoin and blockchain are upending the financial world,” said Fortress Investment Group co-chief executive officer Pete Briger, who worked with Morehead at Goldman. “Dan is at the epicenter of all that.”
Morehead could have gotten into cryptocurrencies even earlier, in 2011, when his brother introduced him to Bitcoin. He read about it some, thought it was a cool idea and then pretty much forgot about it.
Then, two years later, Briger summoned him to Fortress’s San Francisco offices to discuss Bitcoin, along with early crypto evangelist Mike Novogratz. Briger, 58, a distressed-debt specialist who describes himself as a “garbage collector” of the financial system, saw Bitcoin as having the potential to disrupt traditional banking.
“Blockchain is a game-changer in financial services,” Briger said. “It pressures the banking and payments industry to rethink their reliance on legacy barriers to protect competitive advantages.”
After the meeting, Morehead pledged to do additional research, and a month later he told Briger that crypto was the most exciting thing he’d seen in his career. He set up shop in Fortress’s office and got to work on standing up a cryptocurrency investment fund.
In addition to the gains for the Pantera Bitcoin Fund, a venture fund that also debuted in 2013 has generated an internal rate of return of 51%, and Pantera’s Liquid Token Fund surged 385% in 2021 alone.
Fortress became one of Morehead’s biggest backers. Finding such an institutional investor during Bitcoin’s earlier days was an exception.
Most investors were “high net-worth individuals, particularly tech entrepreneurs and Wall Street executives that were investing their own money,” Morehead said.
Bypassing more traditional funding allowed Pantera to move quickly.
“One CEO of a tech company wired $2 million to the fund, and then a couple of weeks later called and said, ‘Hey, what are the terms?” Morehead recalled.
Morehead organized an annual Bitcoin conference at his Lake Tahoe home that he called Bitcoin Pacifica, attracting cryptophiles from around the world.
“They weren’t the kind of people I was used to meeting through Fortress,” Briger said of one meeting he attended. “A lot of fringe players, cypherpunks, cryptographers and probably some who’d call themselves anarchists.”
It was a big change for Morehead, too. He had started Pantera as a traditional macro hedge fund — his specialty during four years as chief macro strategist and chief financial officer at Robertson’s legendary hedge fund, Tiger Management.
That first version of Pantera grew to about $1 billion of assets before the 2008 financial crisis. Now, as a pure crypto investor, it’s several times larger. The firm managed about $5.6 billion at the start of this year, including a fourth fund that raised $600 million in November.
That’s down from $6.4 billion Pantera was managing at the end of November. In his Dec. 23 interview with Bloomberg, Morehead predicted that expectations for more aggressive Federal Reserve tightening would continue to drag on cryptocurrency prices.
The Bloomberg Galaxy Crypto Index, which tracks the value of a variety of cryptocurrencies, has dropped almost 20% since the start of the year, while the yield on 10-year Treasuries has climbed about 25 basis points.
“Blockchain is now being driven by all the excessive money-printing going on in the world,” said Morehead, whose firm recently opened an outpost in Puerto Rico, which has become a haven for crypto investors.
In a letter to investors last month, Morehead called the U.S. government and mortgage bond market “the biggest Ponzi scheme in history.”
As for whether the technology has fulfilled Briger’s vision for disrupting the banking system, he said the process has begun, but that there’s still a long way to go.
“It’s like email in the early 1990s, when it was very clunky,” Briger said. “No one could envision at that point what instant communication would mean for commerce and the world.”
Morehead said he’s no longer interested in betting on the traditional assets that defined his early career and that he hasn’t invested in anything other than crypto since 2013.
“Crypto is so much more compelling than any other trade out there.”
Goldman Sachs Alum’s New Cryptocurrency Platform Offers Social Sentiment For Investing
Entrepreneur and veteran of Goldman Sachs’ Marcus retail banking unit Adam Dell is launching Domain Money, a new cryptocurrency platform that will be using social sentiment to help investors.
Dell, who is also the brother of Dell Technologies Inc. founder Michael Dell, put together a team from Goldman Sachs Group Inc. for Domain Money. He has drawn $33 million in Series A financing from Bessemer Venture Partners, Maveron, RRE Ventures, SV Angel, Salesforce.com founder Marc Benioff, and Joe Lonsdale. Domain Money plans to launch a Series B fundraising round later in 2022.
“I’m a serial entrepreneur and I love building things,” Dell said. “The opportunity to work with 25 of my former colleagues from Goldman was a very exciting thing. Startups have flexibility and an ability to execute that larger companies don’t have.”
The New York-based company officially launched on Tuesday with 43 employees, many of whom worked with Adam Dell when he was head of product at Marcus from 2018 to 2021. Domain Money plans to hire up to 30 more people this year.
“Thematically, we are interested in blockchain technologies that serve a core banking function, such as DeFi money markets,” Dell said. “We believe there’s a class of investors who are familiar with and comfortable with Fidelity, Schwab and ETrade who don’t feel like those platforms are giving them robust access to the crypto asset class. We’re trying to serve that customer.”
Domain Money offers actively managed stock and crypto investment strategies managed by an expert investment team from Goldman Sachs, Morgan Stanley and Bridgewater Associates.
The unique features of Domain Money include its Signal product, which monitors social media outlets and assigns a social sentiment score to each type of asset. Domain Money tracks protocol health by looking at GitHub submissions within the blockchain developer community. The company also measures the flow of funds onto and out of exchanges an an indication of market sentiment.
“As we look at each of those components of the blockchain ecosystem, it’s apparent to me that this technology is going to become the future of finance,” Dell said.
Dell, who is CEO of Domain Money, said he sees a bright future for blockchain technology as the backbone of a more efficient transaction system that’s rapidly growing.
To illustrate the size of the market now, Dell pointed out that Visa Inc. handled about $10 trillion in transaction volume in 2021, while ethereum, the popular blockchain-backed cryptocurrency, accounted for about $11 trillion in volume.
The market for decentralized finance platform — or DeFi transactions, where consumers and institutions can borrow and lend money — totals roughly $200 billion in 2022, up from $1 billion in 2018. Non fungible tokens (NFTs) amounted to $23 billion in 2021. Stablecoin assets grew to $155 billion in 2021 from about $5 billion in 2018.
The company’s team of Goldman Sachs and Bridgewater Associates veterans manages baskets of stocks and cryptocurrencies for investors less familiar with the asset class.
$8B New York Commercial Bank To Offer Bitcoin Services
“As part of our ongoing digital transformation, we recognize the importance of staying current with emerging market trends,” said Flushing Financial Corporation CEO and president John R. Buran.
Flushing Financial Corporation, the parent company behind New York-based Flushing Bank has partnered with crypto firm New York Digital Investment Group (NYDIG) to offer Bitcoin (BTC) services to its customers.
The bank was founded in 1929 and according to its Q4 report, it held more than $8 billion worth of assets at the end of 2021, with a net income of around $200 million.
According to an announcement, the partnership with NYDIG will enable the bank to offer its customers BTC buying, selling and holding services in a “safe and secure environment.”
Flushing Bank stated that it aims to launch its BTC-related services later this quarter and will divulge further details of its roadmap soon.
Flushing Financial Corporation CEO and president John R. Buran attributed the firm’s BTC adoption play to its desire to keep up with growing trends in financial markets:
“As part of our ongoing digital transformation, we recognize the importance of staying current with emerging market trends and consumer demand for alternate financial services.”
NYDIG is a heavyweight in the crypto sector that primarily provides BTC-related services and products. The firm raised $1 billion worth in funding in December at a valuation of nearly $7 billion.
On the banking and credit union front, NYDIG states that it has more than 35 partnerships in the sector, including deals with Five Star Bank, Idaho Central Credit Union, STAR Bank, U.S. Bank and NYMBUS, to name a few.
NYDIG chief innovation officer Patrick Sells stated on Tuesday that the firm is paying significant attention to partnering with traditional financial institutions as it’s “ready to show the world that banking is better with Bitcoin.”
Sells Highlighted A Growing Demand For Crypto Exposure Via Organizations With Which Users Are Already Familiar Wit:
“Our research is clear; consumers want Bitcoin and they want it through the banks and credit unions they already trust.”
The firm has also been steadily growing its mainstream presence via partnerships with top sporting organizations such as the NBA’s Houston Rockets, along with Luxury Automobile Dealer Post Oak Motor Cars.
Global VC Funding For Blockchain Firms Surged To Record $25B In 2021: CB Insights
Investments in blockchain startups accounted for 4% of global venture dollars, up from just 1% in 2020.
Venture capital funding for blockchain startups reached $25.2 billion last year, up 713% from $3.1 billion in 2020, according to CB Insights’ “2021 State of Blockchain” report.
In the fourth quarter of 2021, global funding rose to over $9 billion, up from over $7 billion in the prior quarter, the market intelligence firm added.
Funding for blockchain startups accounted for 4% of global venture dollars, up from 1% in 2020. CB Insights sees this percentage rising further in 2022 given the growth in crypto, non-fungible tokens (NFT) and Web 3 startups.
Venture funding for NFT firms jumped to $4.8 billion in 2021, up from just $37 million in 2020. Meanwhile, global DeFi deals executed reached 240, almost doubling from 124 in 2020.
Overall, over 1,000 blockchain deals were executed in 2021, surpassing 2020’s level of 662. Of those 2021 deals, 79% were early-stage investments, CB Insights said.
Coinbase Ventures was the top blockchain investor in 2021, with investments in 68 companies, followed by China-based AU21 Capital with 51 and Andreessen Horowitz (a16z) with 48.
Overall funding into U.S.-based blockchain companies reached $14.1 billion in 2021, up from $1.7 billion in 2020. New York metro-based companies led the way with $6.5 billion in funding, followed by Silicon Valley at $3.9 billion.
Social-Media Platform Stocktwits Takes Cue From Brokerages, Adds Crypto Trading
The exchange FTX will be providing the infrastructure for trading.
Stocktwits, the social-media service for retail investors, is adding live trading as an option for its users within the platform.
The first assets Stocktwits users will be able to trade are cryptocurrencies. The platform plans to expand into equities trading later this quarter.
Brokerages such as Robinhood Markets Inc., Webull and eToro have grown in popularity in part by adding social components to trading, incorporating chat feeds and trending stocks. The payment app, Venmo, also gained ground because of its social feeds and emoji.
With this move, the social-media platform is doing the reverse.
The crypto exchange FTX will be providing the infrastructure for Stocktwits’ crypto trading. Fees for crypto trading will be the same as they are on FTX, which has a tiered fee structure.
Stocktwits, founded in 2008, raised $30 million in a fundraising round in December that included Alameda Research Ventures, owned by Sam Bankman-Fried, who also owns FTX.
Stocktwits has added about 2 million registered users over the past two years, pushing its total to 6 million, and many of them are focused on crypto. Cryptocurrencies have ballooned into a $1.8 trillion market from $260 billion before the pandemic started two years ago.
As a result, digital currencies such as bitcoin and ethereum are among the most talked about assets on Stocktwits, said Chief Executive Rishi Khanna, and completely dominate the platform on weekends, when they are still trading but equities aren’t.
There is another reason the company is starting with crypto as opposed to equities—there are fewer regulatory hurdles to offering crypto trading, Mr. Khanna said.
What will make Stocktwits different from other commoditized trading services, Mr. Khanna said, is its established community of users on the site sharing information, trading tips, strategies and data.
“You can’t just throw money at it and make social happen,” he said. “There is a certain aspect of luck and timing that you need to get social really working.”
Investments In Blockchain, Crypto Firms Tops $30B In 2021: KPMG Report
A major implication of the growing popularity of digital currencies, according to the KPMG report, is that sovereign countries through their Central Banks are now beginning to harness ways to develop a digital currency to integrate into the economy.
Companies focused on blockchain and its underlying technologies were arguably the delight of Venture Capital firms in 2021 as a total of $30 billion in investments vestments rose significantly from $5.4 billion in 2020 to over $30 billion in 2021.
This massive funding can be attributed to the increased recognition of the potential of blockchain and its attendant technologies, and the need to be a major part of the innovation as an early investor.
“Investment in the crypto and blockchain space soared in 2021, rising from $5.4 billion in 2020 to over $30 billion. Globally, there was an incredible increase in the level of recognition for the potential role of crypto and its underlying technologies in modern financial systems,” the report reads.
According to KPMG, investors seemed amused by startups involved in the money movement in general. 2021 was actually a blockbuster year for Fintech firms as the overall funding secured by these outfits in the second half of last year reached $210 billion across 5,684 deals.
Of particular interest are Global VC deals which hit a maximum of $115 billion and specifically, “corporate VC-related investment accounted for $50 billion of this total — more than double the $24 billion seen in 2020.”
Many cryptocurrency exchanges, decentralized finance (DeFi) protocols, Non-Fungible Token (NFT) initiators, and metaverse linked startups were amongst those who got funding from investors in the past year. Of prominence is the more than $1 billion raised by Bahamas-based brokerage, FTX Derivatives Exchange.
NFT marketplace OpenSea also raised as much as $300 million this January to raise its valuation to $13 billion.
Growing Investments in Blockchain and Government’s Response
A major implication of the growing popularity of digital currencies, according to the KPMG report, is that sovereign countries through their Central Banks are now beginning to harness ways to develop a digital currency to integrate into the economy.
Correspondingly, the growth in the crypto ecosystem has sparked a lot of regulatory actions from the Central Banks.
“Increasing activity in the space has also sparked further action from central banks, some of which are considering the development of digital currencies in the footsteps of the digital yuan in China.
It has also sparked increasing scrutiny from regulators,” the report outlined, drawing reference from the crackdown on all things crypto by the Chinese government, as well the similar move that is now being made by India.
Beyond these two countries, a lot of nations have also introduced at least one form of stringent crypto regulation or another. With the prominent goal to gain oversight and enforce appropriate monitoring and taxation, a lot of stakeholders in the space are advocating for regulations to be meted out.
This year opened up with significant funding news that may even surpass that of last year. The best response on the path of regulators is to embrace the new technology and create an enabling environment for its growth in order to reap the benefits when the tech is fully matured.
Wall Street Takes Lead In Crypto Investments
Hedge funds, registered investment advisers and some companies step up their stakes in cryptocurrencies as the market becomes more mainstream.
Professional investors have been surging into crypto at record rates.
Institutional clients traded $1.14 trillion worth of cryptocurrencies on exchange Coinbase Global Inc. COIN 1.83% in 2021, up from just $120 billion the year before, and more than twice the $535 billion for retail.
Retail traders comprised bitcoin’s market in the early years and traded on exchanges that offered a single bet: buy or sell bitcoin, 24 hours a day, seven days a week. That resulted in a small, erratic market that could be easily moved by modestly sized trades.
“It’s a completely different game now than it was,” said Leah Wald, the chief executive of Valkyrie Funds, which sells crypto-focused exchange-traded funds.
Those retail investors are still there, but they have been joined by hedge funds, registered investment advisers and some companies, said Gil Luria, a strategist at D.A. Davidson who has been studying bitcoin since its early days. Even El Salvador has become a buyer. “They’re all new,” he said.
The growth in professional investors underscores the rapid mainstreaming of cryptocurrencies in recent years. Venture funds invested billions in cryptocurrencies in 2021—and crypto exchanges have amped up their marketing dollars to try to become household names.
A survey of 300 institutional investors conducted by State Street in October found that more than 80% were now allowed to have exposure to cryptocurrencies. Large funds with assets of $500 billion or more under management were the most bullish, and nearly two thirds of them had dedicated staff for the crypto market.
The only major institutional group that wasn’t in the market, State Street found, were sovereign-wealth funds, though it predicted they would be within two years.
The growth of institutional investment has changed the way cryptocurrency markets behave. Now, digital markets have started to mirror traditional markets.
Professional traders see it as one asset inside a diversified portfolio, Mr. Luria said. They hold it because it promises outsized returns compared with other assets, and they trade like any other risk asset.
That is why bitcoin has recently been trading largely in lockstep with tech stocks, said Lucas Outumuro, an analyst for research firm IntoTheBlock. The fear of rising rates and changing policy at the Fed is lowering the interest in risk assets, decreasing buyers in the market and boosting correlations.
In January, bitcoin’s correlation to the tech-dominated Nasdaq 100 was at its highest level since April 2020, he said.
The Nasdaq Composite Index is down 14% year to date, with investors concerned about inflation, interest rates, the economy and war in Ukraine. Bitcoin is down 18%.
The crypto market’s offerings have grown to adapt to its new investors. There are myriad derivatives exchanges, and trading desks and automated services that allow investors to add leverage to their bets.
Investors in those kinds of financial products comprise a majority of the dollar volume of trading. IntoTheBlock tracks transactions of more than $100,000 as a proxy for these kinds of professional investors and firms. In the fourth quarter of 2021, those transactions represented 99% of total volume traded, the firm said.
Crypto hedge funds have proliferated in response to that demand. There are about 856 operating today with $68 billion in assets under management, according to data from Crypto Fund Research, up from 31 managing less than $1 billion at the end of 2016.
In fact, about the only thing that hasn’t changed is bitcoin’s volatility, said Nicholas Colas, the founder of research firm Data Trek. Usually, as assets grow in size and achieve critical mass, they become less volatile.
“That’s not the case with bitcoin,” he said. “It’s just as volatile now as it was five years ago.”
Wall Street Is Marketing Bitcoin For Us
Big banks continue to explore Bitcoin and cryptocurrency’s long-term value proposition after shunning the asset class for years.
A lot has changed since I first started covering Bitcoin (BTC) in 2012. A market once relegated to the deepest corners of the internet has now spawned a global revolution that has forced corporations and governments to form an opinion on digital assets. Now, Wall Street is chiming in, with analysts at major banks increasingly convinced that crypto is a maturing asset class with long-term potential.
That was the general takeaway of a new report from Wells Fargo’s research division. The report’s bullish undertones are truly remarkable when you consider how big banks treated Bitcoin just a few years ago. Perhaps they learned not to take cues from Jamie Dimon, whose JPMorgan Chase was outed for massive money laundering in 2020. But please tell me how Bitcoin is so dangerous.
This week’s Crypto Biz explores Wells Fargo’s report and other business stories from the world of blockchain. To get a full breakdown of the top weekly news, register for the newsletter at the very bottom of the page.
Wells Fargo: Crypto Adoption Could ‘Soon Hit A Hyper-Inflection Point’
In a report titled “Cryptocurrencies — Too early or too late?” released on Monday, Wells Fargo described the merits of investing in digital assets, going as far as comparing Bitcoin to the internet in the early-to-mid 1990s.
While this comparison would usually invoke a recommendation to buy digital assets, Wells Fargo said there’s no reason to FOMO into the market given that the space is “relatively young” and has a lot of room to grow.
But the writing is on the wall: The banking giant seems to believe that exposure to crypto is a very, very good investment. As it turns out, Wells Fargo began bending the knee to crypto roughly one year ago:
Banking giant Wells Fargo finally bent the knee and acknowledged Bitcoin as a “speculative investment.” As a business that closed client accounts for using cryptocurrencies, champagne bottles were cracked open afterward. #CryptoYearInReview https://t.co/5kO7PHc3z9
— Cointelegraph (@Cointelegraph) January 3, 2021
KPMG Canada Adds BTC And ETH To Its Corporate Treasury
Crypto adoption appears to be on the rise among corporations, with KPMG Canada becoming the latest company to add Bitcoin and Ether (ETH) to its balance sheet. The decision to gain exposure to digital assets was made by KPMG Canada’s governance committee, which includes stakeholders from its finance, risk management and tax divisions. According to managing partner Benjie Thomas, the Big Four tax auditor believes crypto is a “maturing asset class” with a strong long-term value proposition.
We have just completed an allocation of cryptoassets to our corporate treasury, our firm’s first of its kind investment in the asset class. This includes Bitcoin and Ethereum tokens, and carbon offsets to maintain a net-zero carbon transaction: https://t.co/32hsKbnGuC
— KPMG Canada (@KPMG_Canada) February 7, 2022
Warren Buffett Invests $1B In Bitcoin-Friendly Neobank, Dumps Visa And Mastercard Stocks
The “Oracle of Omaha” now has more companies in his portfolio that have direct/indirect exposure to Bitcoin and similar cryptocurrencies.
Warren Buffett’s Berkshire Hathaway dumped a portion of its Visa and Mastercard holdings and increased exposure in Nubank, the largest fintech bank in Brazil that’s also popular among the country’s Bitcoin investors.
In a securities filing late Feb. 14, the industrial conglomerate disclosed that it had purchased $1 billion worth of Nubank Class A stock in Q4/2021. On the other hand, it sold $1.8 billion and $1.3 billion worth of Visa and Mastercard stock, respectively, signaling a shift away from credit companies to gain exposure in their fintech rivals.
Buffett, the so-called “Oracle of Omaha,” is popular for his cautious approach to investing, particularly in the market’s hottest sectors such as fintech. The veteran investor had also downplayed emerging decentralized finance solutions like Bitcoin (BTC), ridiculing it as an asset that “does not create anything.”
But Berkshire’s new stake in Nubank shows that Buffett has been softening up to fintech lately. In detail, the firm had invested $500 million in the startup in July 2021. Its returns on the said investment amounted to $150 million in December 2021 after Nubank debuted on the New York Stock Exchange (NYSE).
$NU Buffett-backed Nubank stock set for NYSE debut as IPO pricing valued company at about $41.5 Billion.
— InvestingDesk (@InvestingDesk) December 9, 2021
So far, Buffett has not shown any intention to sell his position in Nubank.
The Buffett-Bitcoin Connection
Buffett’s additional investment into Nubank shows his acknowledgment of the fintech sector’s underlying theme the digitization of financial services, as well as his willingness to associate with companies that are involved in the cryptocurrency sector.
In detail, Easynvest, a trading platform that Nubank acquired in September 2020 has been actively offering a Bitcoin exchange-traded fund (ETF) since June 2021. Dubbed QBTC11, the ETF is backed by QR Asset Management and is listed on the B3 stock exchange, the second-oldest bourse in Brazil.
Thus, it appears that Nubank, which remains exposed to the emerging crypto sector via Easynvest, could use the additional revenue opportunities to benefit its top investor, Warren Buffett, despite his views that Bitcoin is a “rat poison squared.”
That is primarily because of the growth of crypto-related investment products in 2021. Notably, their numbers doubled in the year, rising from 35 to 80, as per Bloomberg Intelligence data, while the total valuations of the assets they held reached $63 billion versus $24 billion at the start of 2021.
Emily Portney, chief financial officer at Bank of New York Mellon Corp. — another firm in Buffett’s investment portfolio — noted that digital assets could become a “meaningful source of revenue” for investment banking firms as Bitcoin investment vehicles become more mainstream.
Meanwhile, Leah Wald, chief executive of crypto-asset manager Valkyrie Investments, predicted an increase in the capital flows into crypto-related investment vehicles, saying they have become a “phenomenon that’s starting to take off,” before commenting:
“If you look at inflows from a volume perspective, not only has it been steady even with the price corrections that Bitcoin is notoriously famous for, but you’re seeing a lot of institutions jump in.”
Buffett’s Portfolio Full Of Crypto-Loving Companies
While Buffett might not invest in Bitcoin directly, he is already gaining indirect exposure as companies in his portfolio foray into the crypto sector.
For instance, in October 2021, just a month before Bitcoin reached its all-time high of $69,000, fifth-largest U.S. bank U.S. Bancorp launched a cryptocurrency custody service for its institutional investment managers, noting that they witnessed an increase in demand from their “fund services clients” over the last few years.
Similarly, in another announcement made October 2021, Bank of America launched a cryptocurrency research initiative, citing “growing institutional interest.”
Months before, BNY Mellon announced that it would hold, transfer and issue Bitcoin and similar cryptocurrencies for its asset-management clients.
Announcing the creation of the BNY Mellon Digital Assets unit – A team dedicated to building the first multi-asset custody and administration platform for traditional and digital assets, including #cryptocurrencies. https://t.co/aZ7wMfAXqg pic.twitter.com/L54TFVpJNv
— BNY Mellon (@BNYMellon) February 11, 2021
“The Nubank investment can be tagged as Buffett’s way of supporting the fintech/crypto world without taking back his criticisms of the past,” asserted Greg Waisman, co-founder and chief operating officer of crypto wallet service Mercuryo, adding that the Berkshire boss is now backing the “digital currency ecosystem indirectly.”
“Even an indirect exposure is bound to increase the positive sentiment that may push more investors into the space.”
Crypto VC Investments In Latin America Grew Almost Tenfold In 2021 To $653M
Consumer-facing crypto exchanges and retail trading platforms received the majority of funding, according to the Association for Private Capital Investment in Latin America.
Venture capital investments in crypto and blockchain firms in Latin America reached $653 million in 2021, almost 10 times more than was invested in 2020, according to a report published by the Association for Private Capital Investment in Latin America (LAVCA).
Investments were concentrated in consumer-facing asset exchanges and retail trading platforms, which together captured $607 million.
Crypto investment in Latin America continued to boom compared with VC investments in crypto in the region that totaled just $68 million in 2020.
Globally, VC funding for blockchain startups reached $25.2 billion last year, up 713% from $3.1 billion in 2020, according to CB Insights’ “2021 State of Blockchain” report.
Bitso, a Mexican crypto exchange with operations in Argentina and Colombia, raised $250 million in May 2021 and became the first crypto unicorn in Latin America. The leading Brazilian crypto exchange, Mercado Bitcoin, raised a total of $290 million across three rounds and reached a $2.2 billion valuation.
Three Argentinian crypto exchanges also raised VC funding in 2021. In September, Ripio raised $50 million in a Series B funding round. And in August, Lemon Cash and Buenbit raised $16 million and $11 million, respectively.
Also in August, Kaszek, a leading Latin American venture capital fund, made its first decentralized finance (DeFi) investment, leading a $3 million round in Exactly, a startup that is building an open-source, noncustodial credit protocol on the Ethereum platform.
Overall, Latin American venture investments reached $15.7 billion in 2021, compared to $4.1 billion invested in 2020, according to LAVCA.
Sequoia Capital Launches Crypto Fund Worth Up To $600M
Venture capital firms allocated $25.2 billion towards blockchain and cryptocurrency projects in 2021, the highest on record.
American venture capital firm Sequoia Capital has launched a new cryptocurrency fund as part of its ongoing efforts to bootstrap the next generation of blockchain-focused startups.
Bloomberg reported Thursday that Sequoia is allocating up to $600 million towards the new sector-specific fund. Shaun Maguire, a partner at Sequoia, described crypto as a “megatrend over the next 20 years” and called it “the future of money.”
The new crypto fund is part of three new sub-funds that were introduced by Sequoia on Thursday. The new funds, which operate under the Sequoia Capital Fund, will rely on capital that’s already committed by the firm’s limited partners.
Sequoia is no stranger to the cryptocurrency market, having financed dozens of projects in the space. As Cointelegraph reported, Sequoia recently led a $450 million funding round for layer-2 scaling solution Polygon. The firm was behind a $25 million equity round for DeFi wallet DeBank and the $50 million raise for StarkWare. Sequoia also participated in a $1.15 billion investment round for Citadel Securities, which is broadening its exposure to digital assets.
— Cointelegraph (@Cointelegraph) February 5, 2022
Global blockchain funding reached $25.2 billion in 2021, having grown 713% over the previous year, according to data from CBI Insights. Venture capital funding has largely focused on crypto adoption, with firms backing projects across various sub-sectors including nonfungible tokens, decentralized finance, crypto exchanges and infrastructure services. More recently, venture capital has placed greater emphasis on Web3, metaverse and GameFi projects.
Lehman Brothers Bargain Hunter Bob Diamond Now Paying Up For Crypto
Diamond’s SPAC Concord is now valuing stablecoin issuer Circle at $9 billion, twice the initial valuation.
Bob Diamond made his reputation on Wall Street by boldly buying key assets from Lehman Brothers at a bargain price following the subprime mortgage crisis, back when he was the president of the giant British bank Barclays. Now he’s paying top dollar to try to replicate that success in the digital assets market.
His latest dramatic move – Diamond’s special purpose acquisition company (SPAC), Concord Acquisition Corp., agreed to double the valuation for U.S.-based stablecoin issuer, Circle – shows just how big the stakes are as Wall Street veterans place their bets on the future of finance.
Circle negotiated a new deal on Thursday with Concord that values the company at $9 billion, up from the initial agreement in July that valued it at $4.5 billion. The new deal reflects improvements in Circle’s financial outlook and competitive position – particularly the growth and market share of USD coin (USDC), according to a statement announcing the re-valuation on Thursday.
A Major Player
In 2008, Diamond spearheaded Barclays’ acquisition of some key assets of the embattled Lehman Brothers following the subprime mortgage crisis, which not only impressed Barclays’ shareholders but also made the bank a major player on Wall Street. Diamond resigned from his position in 2012 after Barclays was hit with a massive fine for trying to manipulate Libor interest rates.
The new Circle deal shows Diamond is now looking to replicate his success with Lehman Brothers in the digital assets business.
“We continue to believe that Circle is one of the most interesting, innovative and exciting companies in the evolution of global finance and we believe it will have an historic impact on the global economic system,” said Diamond, Concord’s chairman, in the statement.
Circle was co-founded in 2013 by Jeremy Allaire, a technologist who has long seen the disruptive potential of the internet. In addition to issuing USDC in partnership with the Coinbase crypto exchange, Circle owns equity crowdfunding platform SeedInvest and for a time owned crypto exchange Poloniex until divesting it in October 2019.
In 2018, the payment services firm achieved unicorn status after closing a Series E fundraising round that pushed its valuation to nearly $3 billion.
Still An Appetite For Crypto
Circle’s new deal comes at a time when some other crypto companies that are aiming to go public are struggling to gain traction with investors when the broader crypto market pulled back from its peak last year. Recently, crypto mining companies such as Core Scientific and Rhodium Enterprises that were slated to go public in the first half of this year received pushback from investors and had to delay their deals due to volatile markets.
However, Circle’s new deal shows there is still an appetite for crypto firms that are set to make a mark across the wider crypto ecosystem, and Circle’s issuance of one of the world’s leading stablecoins certainly qualifies.
A stablecoin is a type of cryptocurrency whose value is tied to an outside asset, such as the U.S. dollar or gold, to stabilize the price. USDC was launched in 2018 and was developed in conjunction with Circle’s affiliated CENTRE consortium, of which Coinbase is also a part. The stablecoin is backed by cash and equivalents and short-duration U.S. Treasury bonds and is redeemable 1:1 for U.S. dollars.
“With the [U.S. Federal Reserve] dragging their feet on the digital dollar, they’ve left a wide gap for the private sector to capitalize on the issuance of stablecoins,” Mati Greenspan, founder of Quantum Economics, told CoinDesk. “Being backed by incumbent financial institutions, Circle’s USDC coin is currently a clear leader in a rapidly growing market,” Greenspan added.
“Circle has made massive strides toward transforming the global economic system through the power of digital currencies and the open internet,” said Allaire, Circle’s co-founder and CEO in Thursday’s statement.
SoftBank-Backed Miami Brokerage To Start Trading Cryptocurrency
* Avenue Securities Serves Many Brazilians Investing In The U.S.
* Company Tripled Its Headcount To 300 Over The Past Year
Avenue Securities, the Miami-based brokerage that specializes in serving Brazilians investing in the U.S., plans to start trading cryptocurrencies next month.
“That is beyond a shadow of a doubt the project with the biggest demand from our clients,” Roberto Lee, Avenue’s chief executive officer and founder, said in an interview. “Our surveys show that about 15% of our almost 500,000 costumers will start trading cryptocurrencies on the first day we offer the service.”
Founded in 2018, Avenue became fully operational as a brokerage in December 2019, offering middle-class and rich Brazilians digital investments including third-party funds and stock brokerage services in the U.S. The firm, which has about $2 billion under custody, tripled its headcount to 300 employees in the past year.
Competitors are making similar moves. Banco Bradesco SA, Brazil’s second-biggest bank by market value, said in December it formed a partnership with the Miami-based fintech BCP Global to offer digital investments to upper-middle-class and rich Brazilians.
“Probably what we will see in 2022 is the arrival of big Brazilian competitors to our business, and we are going to answer that by becoming more complete, by offering not only a U.S. bank account but also more and more products,” Lee said.
One such product will be no-fee trading for as many as 40 cryptocurrencies, according to Lee. The company will operate with eight liquidity providers, which Lee declined to name, with prices as much as 8% lower than those offered in reais in Brazil’s local markets.
“The trading volume of cryptocurrencies in reais is still very thin compared to dollar volume, and that makes a difference in price formation,” he said. “People will really see a difference.”
The idea is to eventually offer nonfungible tokens as well as so-called cryptocurrency staking, in which an investor earns a passive income by using certain cryptocurrencies to help verify transactions on a blockchain network.
One sign of how large the demand for blockchain assets is at Avenue: Last April 14, when the U.S. cryptocurrency exchange Coinbase Global Inc. went public, about 4,000 Brazilians opened accounts in a single day in order to buy the stock, which Lee said was a record at Avenue.
One of the first investors at Avenue was Vectis Partners Holding SA, which continues to hold a stake. Vectis partners include Paulo Lemann, the son of billionaire Jorge Paulo Lemann; Alexandre Aoude, Deutsche Bank AG’s former chief in Brazil; and Patrick O’Grady, a former XP Inc. partner. In August, Avenue received a $30 million second round of investments led by SoftBank Group Corp.’s Latin America Fund.
Avenue is the third brokerage Lee helped to found. He started with WinTrade Home Broker, one of the first online firms serving retail clients in Brazil. In 2010, he co-founded Clear Corretora de Titulos e Valores Mobiliarios, which was bought in 2014 by XP, Brazil’s biggest brokerage firm.
Crypto Funds Register Largest Weekly Inflows Since December
Capital flowed into BTC funds for a seventh consecutive week, while ETH products registered their largest gain in 13 weeks.
Inflows into cryptocurrency investment funds rose sharply last week, offering cautious optimism that investors are broadening their exposure to digital assets despite geopolitical uncertainty and monetary tightening from central banks.
Digital asset investment products registered $127 million worth of cumulative inflows for the week ending March 6, according to CoinShares data. A CoinShares representative told Cointelegraph that this was the highest weekly inflows since Dec. 12, 2021. The increase was also significantly higher than the $36 million of inflows registered the previous week.
Like in previous weeks, Bitcoin (BTC) products recorded the largest weekly inflows at $95 million. Bitcoin fund flows have increased for seven consecutive weeks. Ether (ETH) funds saw inflows totaling $25 million, which was the largest in 13 weeks. Inflows into multi-asset investment products also increased by $8.6 million.
Year-to-date, Bitcoin funds have seen $166 million in cumulative inflows.
Institutions are bullish on #Bitcoin!
The amount of BTC held by public companies has gained significant market share from that held in spot ETFs. https://t.co/DZP2AlMXlh
— Cointelegraph (@Cointelegraph) January 3, 2022
Crypto markets have exhibited a higher correlation with public equities since the onset of the Covid-19 pandemic, which means that digital assets have been negatively impacted by legacy finance’s shift to a more risk-off environment in recent months. That shift was largely prompted by the Federal Reserve’s plans to begin normalizing monetary policy. The recent events in Ukraine have also negatively impacted demand for higher-risk investments, which include crypto.
However, according to crypto hedge fund Pantera Capital, the correlation between stocks and crypto is a “short-lived thing.” As CEO Dan Morehead noted, since 2010, correlations between Bitcoin and the S&P 500 usually spike over a two-month period before decoupling. Morehead noted six downtrends of the S&P 500 over that period.
U.S. IPO Drought Deepens In Biggest Slump Since Financial Crisis
* Market Currently Heading For Second Week Without Any IPOs
* Once-In-A-Decade Lull Comes As New Listings Lead Stocks Lower
The U.S. market for new listings has shuddered to a halt and is now heading for its slowest period since the financial crisis over a decade ago.
No company priced a traditional initial public offering last week amid the war in Ukraine, according to data compiled by Bloomberg, and the calendar is blank for this week as well. That means the market is on track for its first two-week period without an IPO — outside of a vacation period — since 2009.
The lack of listings coincides with the broader market extending its selloff on Russia’s invasion of Ukraine and the Cboe Volatility Index rising to the highest since January last year.
What’s more, recent listings have underperformed other stocks, with U.S. IPOs conducted over the past year closing Monday an average of 30% below their offering prices, according to data compiled by Bloomberg.
In better times, the U.S. IPO market serves as an engine for the economy. Cash injections create jobs, fuel growth plans and fund acquisitions, while letting public investors participate in high-potential growth stories. Traditional IPOs raised nearly $200 billion last year alone, Bloomberg data shows.
This year’s decline has come as a blow to the underwriting industry, analysts at BofA wrote in a note on Tuesday.
“While capital markets revenue for the banks was widely expected to normalize in 2022, the drop-off in equities underwriting has been staggering with the number of IPOs –51% year-over-year on a year-to-date basis and revenues –71% based on Dealogic data,” the note said.
Even during market downturns, a single week without IPOs is rare. Last year, it happened only during the height of the August vacation season and again during Christmas.
Back-to-back weeks is even rarer — it last happened around the Labor Day vacation season in 2019. Excluding holidays, the U.S. IPO market hasn’t gone two straight weeks without a listing since the first quarter of 2009.
The window began closing in February amid the prospect of rising U.S. interest rates. After TPG Inc. delivered the first major IPO of the year in January, average deal values shrunk by 80% in February from the prior month.
The Renaissance IPO Index, which includes stocks that went public in recent years, closed on Monday down 34% for the year. That’s on pace for the index’s worst year since its inception in late 2009.
The souring sentiment has left special purpose acquisition companies as the only companies appearing on the IPO calendar.
In the meantime, issuers are looking for solutions in private equity markets, University of Michigan professor Erik Gordon said in an interview.
“The piles of private money make it easier to go an extra year before directly tapping public money,” he said. “It also makes mispricing easier.”
Fanatics Inc. raised $1.5 billion in a private funding round at a $27 billion valuation, a person with knowledge of the matter told Bloomberg last week. The sports merchandise retailer was previously seen as a top candidate to raise cash via an IPO this year — a development that remains possible, but less likely.
Still, it may not be long before some life trickles back to the listings market. Australian software maker Locafy Ltd. on Monday set terms for a U.S. IPO that is likely to price next week.
Trump’s Former Mideast Envoy Joins Crypto Mania With New Investment Fund
* Jason Greenblatt To Launch Crypto Investment Fund In Israel
* Former Adviser Latest To Launch Firm With Links To Middle East
Jason Greenblatt is starting a blockchain and crypto technology investment fund in Israel, joining other former Trump administration officials who’ve launched financial firms with links to the Middle East.
Greenblatt — one of the key figures behind former U.S. President Donald Trump’s Middle East peace plan — is launching Silver Stone Global Partners alongside Danny Ayalon, the former Israeli ambassador to the U.S., and Uri Gutman, the former Israeli ambassador to South Korea. The team also includes tech entrepreneur Lior Maimon under the umbrella of Silver Road Capital Group.
Bain Capital Ventures Sets Up A Half-Billion-Dollar Fund For Crypto Projects
Venture capital investment in crypto projects topped $25 billion in 2021, more than the sum of the last 10 years.
Bain Capital Ventures, one of the world’s largest startup-investment firms — with $5.1 billion in assets under management — has announced the formation of a new $560 million fund that will focus on crypto-related investments.
According to a Tuesday Bloomberg report, the fund closed in November and it has already invested $100 million in 12 undisclosed projects.
Bain Capital Ventures has a history of investing in the crypto and blockchain sector, having previously backed companies such as BlockFi, Compound and Digital Currency Group. The most recent fund BCV Fund I is the first of its kind from Bain Capital Ventures, focusing solely on the crypto market.
A BCV representative told Cointelegraph that the goal of the crypto fund is to back entrepreneurs developing the next generation of open internet infrastructure. The spokesperson went on to say that the “dedicated investment fund” is set up with a highly technical and collaborative approach to help crypto and Web3 builders from seed through growth.
When asked whether cryptocurrencies will have a significant role in the future of venture capital, the representative responded that the internet is going through a major change towards open, community-driven, and decentralized services.
“We believe this seismic shift will be one of the most important technological developments since the advent of the web and will require a new type of investment firm – one that can support the needs of the founders and the ecosystem from ideation through scale.”
The latest development comes following a slew of venture capital interest in crypto throughout 2021. According to data from Pitchbook, venture capital investment in crypto projects topped $25 billion last year, the highest amount ever on record.
In 2022, although crypto asset prices are highly volatile, venture funds have continued to make key investments in the sector. In February, American venture capital firm Sequoia Capital announced the creation of a $600 million cryptocurrency fund. Polygon raised $450 million in a funding round backed by some of blockchain’s top venture firms.
The cryptocurrency market is in a slump. Bitcoin (BTC) price has dropped around 40% from its all-time high in early November as concerns mount over the Federal Reserve’s monetary policies to combat rising expenses and geo-political conflicts.
However, the BCV representative addressed the current market slump, stating that the dedicated crypto fund is “fundamentally long-term oriented” and is unperturbed by short-term market fluctuations.
Thiel-Backed Crypto Exchange Eyes Debut Amid Regulatory Delays
* Bullish Extends Deadline Amid Crypto-SPAC Deal Delays
* Ex-NYSE President Farley Expects To List In The Second Quarter
Crypto exchange Bullish is eyeing a public debut in the second quarter after regulatory delays kept the company backed by billionaires Peter Thiel and Richard Li from merging with a special purpose acquisition company and listings shares at the end of last year.
Bullish extended the March deadline for its $9 billion tie-up with Far Peak Acquisition Corp. to May on Tuesday as the agreement still awaits approval by the U.S. Securities and Exchange Commission.
The deal is among a slew of crypto firms merging with SPACs that have been slowed down by regulatory reviews, including stablecoin operator Circle and Israeli crypto platform operator eToro Group.
Setting up the exchange has been “hectic,” according to Tom Farley, chief of Far Peak and expected CEO of the combined company.
Launched in November, Bullish allows institutions and retail customers to trade Bitcoin, Ether, EOS and USDC, and is available in more than 40 jurisdictions in Asia Pacific, Europe, Africa and Latin America.
The company was started by blockchain company Block.one, which is backed by PayPal cofounder Thiel as well as hedge fund managers Alan Howard and Louis Bacon. It has not yet decided whether it will move into the U.S., but has started the process of getting state approvals, according to Farley who previously served as president of the New York Stock Exchange.
“Since July we’ve been working on a number of ambitious promises and we’ve achieved them all with the exception of closing the SPAC transaction,” Farley said. “It’s been a hectic six months that includes launching an exchange and growing it more quickly over the three months than any other exchange we know of.”
Monthly average daily volume by trading pair, a key industry metric, reached $213 million in February from $6 million in November, an investor presentation published Tuesday shows. Still that’s small in comparison to Binance, the world’s largest crypto exchange. Its trading volume over the past 24 hours was $81.8 billion.
Far Peak shares traded flat Wednesday amid a continuing rout in that corner of equity capital markets. Likewise, the SPAC tied to Circle, Concord Acquisition Corp., and the one linked to eToro, FinTech Acquisition Corp. V, were also little changed.
Mainstream Hedge Funds Pour Billions of Dollars Into Crypto
Veteran traders including Alan Howard and Paul Tudor Jones are said to be increasing their trading in cryptocurrencies.
Some of the biggest names in the hedge-fund world are betting on crypto.
Firms founded by veterans including Alan Howard, co-founder of Brevan Howard Asset Management LLP, and Paul Tudor Jones, the billionaire who runs Tudor Investment Corp., are expanding their crypto trading, according to people familiar with the situation.
Brevan Howard launched a cryptocurrency hedge fund in January that will begin accepting outside investors. The fund is making bets on the direction of bitcoin, ether and other cryptocurrency prices, while also searching for arbitrage between currencies and investing in blockchain technology.
Brevan Howard has a new crypto division, BH Digital, created in September, which manages over $250 million and has 12 portfolio managers. Mr. Howard has also invested in crypto, blockchain and digital-token businesses.
Meanwhile, Mr. Jones has been buying cryptocurrencies to try to protect against rising inflation. And Hudson Bay Capital Management LP, a $15 billion New York hedge fund, has seen growing profits from trading cryptocurrencies, according to a person familiar with the situation, as are other large firms.
The embrace of crypto by more veteran hedge-fund traders—which are often wagering on the direction of a token’s price, much as they do with stocks—is the latest sign of Wall Street’s warming to digital currencies.
“More funds see crypto as a fifth asset class,” in addition to stocks, bonds, currencies and commodities, says Robert Bogucki, co-head of global trading at Galaxy Digital Holdings Ltd., an early crypto investor. “It’s big enough now.”
Galaxy, launched by Michael Novogratz, a former senior executive at Goldman Sachs Group Inc. and Fortress Investment Group, now manages about $3 billion.
One difference from stock trading: Most hedge funds are avoiding shorting cryptocurrencies, says Mr. Bogucki, worried that these currencies might shoot up in price, leading to quick and big losses. Most funds have focused on buying tokens and trading futures, rather than playing options markets, which can be harder to trade though option activity is growing.
Coinbase Global Inc., the largest U.S. crypto exchange, said institutional investors as a whole traded $1.14 trillion of cryptocurrencies in 2021, up from $120 billion the year before, and more than twice the $535 billion for individual investors.
Soaring trading volume allows hedge funds to buy and sell without affecting prices, a level of liquidity necessary that allows them to place bigger bets.
The “crypto universe is now liquid and large enough to be tradable,” says Michael Botlo, who ran the quantitative-trading fund Quantbot and is now working on crypto initiatives. “Hedge funds are seeing their own investors demand that the firms get involved.”
Many hedge-fund veterans remain doubtful about cryptocurrencies, which have yet to prove themselves as true currencies of exchange.
In addition, cryptocurrencies have done a poor job of storing value or acting as a means of diversification for investors as the crypto market has increasingly reacted to the same cues as traditional markets.
Goldman Sachs Is Hooking Clients Up With Galaxy Digital’s ETH Fund
Goldman and Galaxy Digital are partnering up again to help former clients gain more access to the crypto industry that the latter offers in spades.
Financial services giant Goldman Sachs has been offering clients exposure to Ether (ETH) through Galaxy Digital’s Ethereum Fund, according to a new Securities and Exchange Commission filing.
Goldman Sachs clients keen on spot exposure to ETH have been offered space in Galaxy’s ETH Fund. This strategy became apparent in a Tuesday filing from Galaxy which listed Goldman as a recipient of introduction fees for referring clients to the fund.
Galaxy Digital is billionaire Mike Novogratz’s crypto-focused financial service provider. It controlled $2.8 billion assets under management (AUM) as of the end of Q4 2021.
It is unclear exactly how much Goldman clients have bought, but the minimum investment per investor is $250,000. The filing also states that Galaxy’s ETH Fund has had sales of just over $50.5 million since inception.
Independent wealth management firm CAIS Capital was also listed on the filing as a recipient of placement fees for referring its clients to Galaxy’s ETH Fund. The amount of Goldman’s introduction fee and CAIS’s placement fee has not been disclosed.
This is not the first time Goldman has partnered with Galaxy Digital. Last June, Goldman began offering Bitcoin (BTC) futures trading via CME Group Bitcoin futures with Galaxy Digital providing liquidity.
Goldman’s employees are also increasingly keen on the crypto space. On Feb. 25, Goldman executive Roger Bartlett announced that he was leaving the traditional financial firm to settle at Coinbase crypto exchange.
He will lead global financial operations to, as he said in a LinkedIn post to “embrace opportunities offered by digital assets and its ecosystem.”
Senior chairman at Goldman Sachs Lloyd Blankfein also shares a curiosity about the crypto space. He tweeted on Monday his wonder at how cryptocurrency was not “having a moment” now in light of extremely high inflation rates and individual bank accounts being frozen around the world.
Keeping an open mind about crypto, but given the inflating US dollar and the stark reminder that governments can and will under certain circumstances freeze accounts and block payments, wouldn’t you think crypto would be having a moment now? Not seeing it in the price, so far….
— Lloyd Blankfein (@lloydblankfein) March 7, 2022
US Department of Labor Urges ‘Extreme Care’ Before Adding Crypto To 401(k) Plans
The department warned that cryptocurrency investments present “significant risks and challenges to participants’ retirement accounts.”
The U.S. Department of Labor is recommending 401(k) plan sponsors to “exercise extreme care” before they consider adding a cryptocurrency option to their investment menu for plan participants.
* The Labor Department said it has become aware in the last few months of firms marketing crypto investments to 401(k) plans as investment options, according to a statement Thursday.
* “At this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies,” the Labor Department wrote.
* The Labor Department said crypto presents “significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft and loss.” It highlighted as reasons speculation and volatility, challenges to making informed investment choices, custodial and record-keeping concerns, the lack of reliability of cryptocurrency valuations and an evolving regulatory environment.
* Consequently, the Employee Benefits Security Administration (EBSA) plans to “take appropriate action to protect the interests of plan participants and beneficiaries with respect to these investments,” according to the statement. Those actions would include questioning plan sponsors that offer crypto investments how they can handle the highlighted risks.
* U.S. President Joe Biden signed a first-of-its-kind executive order on cryptocurrencies on Wednesday, directing federal agencies to coordinate their approach to the sector.
* The “whole-of-government” effort to regulate the crypto industry focuses on consumer protection, financial stability, illicit uses, leadership in the global financial sector, financial inclusion and responsible innovation, according to a fact sheet accompanying the Biden order.
Citi’s Digital Asset Co-Heads Resign With Plans To Create Crypto Startup
This move follows various other banking veterans making the change from Wall Street to crypto ventures.
Alex Kriete, co-head of digital assets at Citi, announced his resignation from the banking giant after 11 years at the firm on Thursday via LinkedIn.
He stated in his post that he intends to devote himself full-time to developing a new cryptocurrency company but provided no additional details at the time.
Kriete co-led the digital assets group with Greg Girasole for less than a year since the unit launched in June 2021. Girasole also announced his departure via LinkedIn and together, he and Kriete plan to start their own blockchain-related venture. The two said they would share more details about it in the coming weeks.
Kriete‘s excitement for his new undertaking stemmed from the belief that digital assets will “continue to grow in importance to global capital markets and the formation of new business models.”
He added that a personal interest in blockchain-enabled digital assets started over five years ago and has now led him to want to “assist in the maturation of this market” on his own terms.
While Kriete and Girasole oversaw the digital assets group within Citi‘s wealth management division, the bank has another digital assets unit within its Institutional Clients Group that is led by the recently appointed Puneet Singhvi.
Another Citi executive Matt Zhang also jumped ship to launch a $1.5 billion crypto fund called Hivemind Capital Partners whose first technology partner is Algorand.
And, in a similar corporate leadership move, a longtime Goldman Sachs executive Roger Bartlett decided it was “time to embrace the crypto economy” and left the bank to run global financial operations at Coinbase.
Meanwhile, another bank making pioneering moves into the Metaverse is JPMorgan Chase, having opened a virtual lounge in the Decentraland metaverse, as it hopes to capitalize on a $1 trillion market opportunity, according to the bank.
A Wall Street Quant Turns His Crypto Firm Into A Unicorn
* Gauntlet Raises $23.8 Million Series B At $1 Billion Valuation
* Firm Counts DeFi Protocols Compound And Aave As Clients
Gauntlet, a financial-risk modeling platform for crypto lending, raised a new round of funding that pushed its valuation to $1 billion.
The $23.8 million Series B round was led by Ribbit Capital, the company said in a statement Monday. Existing investors including Polychain Capital and Paradigm also participated.
Tarun Chitra co-founded Gauntlet in 2018 after about five years at D.E. Shaw Research, the firm led by billionaire and hedge fund founder David Shaw, and two years at high-frequency trading company Vatic Labs.
He began Gauntlet after consulting with a group of clients whose platforms became decentralized-finance protocols, where smart contracts automatically execute trades without an intermediary. Gauntlet has 32 employees, mainly in New York City.
Gauntlet’s product is akin to running a “stress test” to ensure financial institutions aren’t taking on excessive risks, but on a continuous basis for DeFi platforms, Chitra said. It runs algorithms using data from cryptocurrency exchanges to help DeFi companies decide optimal lending and collateral levels.
His clients include two of the biggest DeFi protocols — Aave and Compound. The companies each pay Gauntlet more than $5 million a year, according to their voting disclosures.
“The data processing is just strictly getting harder,” Chitra said. “We’re trying to invest in our platform, make sure it scales to as many chains as possible.”
Gauntlet plans to use the funding for hiring and expansion into new client categories, including gaming.
Crypto-analytics firms have been popular with venture investors. Last month, Dune Analytics said it reached unicorn status after raising a $69.4 million round led by Coatue. Another blockchain-analytics firm, Nansen, raised $75 million in December from investors including Accel, GIC and Andreessen Horowitz.
The demand for analytics firms such as Gauntlet also comes with the rise of DeFi, a crypto Wild West where investors sometimes can find double-digit interest rates.
“Some parts of DeFi will advertise very high yields,” Chitra said. “They don’t tell you where the yield is coming from, and you can only figure it out by analyzing the users and the mechanism involved. When we work with a protocol, we do as much diligence on them as they do on us.”
Jefferies Reduces FX Prime Brokerage And Two Of The Unit’s Top Executives Depart
* Mulvihill, Mazzarese Leave To Form New Digital Asset Venture
* Bank Says Prioritizing Where It Can Best Serve Clients In FX
Jefferies Financial Group Inc. is reducing its foreign exchange prime brokerage business and two of the unit’s top executives are departing to join the cryptocurrencies industry.
Brandon Mulvihill, who led the foreign exchange prime brokerage business globally, and Anthony Mazzarese, who oversaw distribution for the division, are forming a new venture in the digital asset space, according to separate posts on LinkedIn. Their last day at Jefferies was Friday.
“We provide comprehensive FX capabilities that serve the diverse and sophisticated needs of our clients,” a spokesman for Jefferies said in an emailed statement. “We are prioritizing the areas where we can best serve our clients with differentiated capabilities, and in doing so, we have decided to reduce our FX prime brokerage footprint.”
Mulvihill and Mazzarese join a spate of Wall Street executives leaving traditional firms for the world of cryptocurrencies. Citigroup Inc.’s Greg Girasole and Alex Kriete, who the bank tapped last year to oversee a new digital-assets group inside its wealth-management division, announced earlier this month they’re also leaving to start a new venture in the industry.
“After 18 years of working in FX, I am excited to enter crypto as I fully believe cryptocurrencies and blockchain technology will transform traditional financial markets,” Mazzarese said in his post. “I’m eager to share more about our venture in the coming weeks.”
Mulvihill said he and Mazzarese have been interested in digital assets since examining crypto non-deliverable forward contracts in 2018.
“We are incredibly excited and passionate to announce the launch of our entrance into digital assets,” Mulvihill said in his post. “Anthony and I have been overwhelmingly inspired by the innovation and growth within the industry, as well as the challenges the industry faces due to such growth.”
US Investment Bank Cowen Launches Dedicated Crypto Division
Cowen initially announced plans to move into the crypto custody business in May 2021, entering a partnership with Standard Custody and Trust Company.
Cowen, a major American independent investment bank, has officially launched a dedicated cryptocurrency and digital asset division.
Called Cowen Digital, Cowen’s new business is designed to offer full-service trade execution and custody for cryptocurrencies like Bitcoin (BTC) and other digital assets for institutional investors, the firm announced on Wednesday.
In order to launch the new crypto division, Cowen has collaborated with PolySign’s cold storage-focused subsidiary, Standard Custody and Trust Company. The bank is also a client of Digital Prime Technologies, a brokerage solution-focused firm providing business and compliance services, the announcement notes.
Cowen initially announced plans to move into the crypto custody business in May 2021, entering a partnership with Standard Custody and Trust Company at the time. The company also invested $25 million in Standard’s parent company PolySign, which was co-founded by Ripple chief technology officer David Schwartz.
According to the announcement, Cowen has been working on building the infrastructure and systems necessary to launch Cowen Digital over the past 15 months.
Managing about $16 billion in assets as of late 2021, Cowen is a major investment bank in the United States. The company is committed to outperforming its clients by “staying at the forefront of innovation,” Cowen CEO Jeffrey M. Solomon said, adding:
“Through Cowen Digital, our clients now have access to the crypto and digital asset markets with our institutional quality and fully integrated end-to-end execution and custody capabilities.”
Future functionalities for Cowen Digital will also include derivatives and futures, financing solutions as well as institutional tools for managing decentrlized finance and nonfungible tokens, the announcement notes.
The news comes shortly after the American investment bank Goldman Sachs executed its first-ever over-the-counter crypto options trade in partnership with digital asset investment firm Galaxy Digital. Previously, JPMorgan Chase launched a virtual lounge in the Decentraland metaverse in February.
Crypto Venture Capital Firms See Surging Assets Under Management
Filings reveal the massive amount of assets that crypto venture funds are managing, while Andreessen Horowitz’s crypto funds were also disclosed to be worth around $9 billion.
Venture capital (VC) firms focused on Web3 projects and crypto businesses are accumulating billions of dollars worth of assets under management as more capital is injected into the sector.
The assets under management figure for Web3 and crypto investment firm Paradigm has recently been revealed. Filings show that the firm has $13.2 billion in assets, a growth of 343% compared to the $2.98 billion reported in a filing in December 2020.
The filings were reviewed by business journalist Eric Newcomer. In his newsletter, he looked at recent applications with the United States Securities and Exchange Commission (SEC) for some of the biggest venture capital firms in the Web3 and crypto sectors.
To be registered as an “investment advisor,” these firms must disclose their regulatory assets under management with the SEC.
The applications also revealed that Andreessen Horowitz‘s (a16z) crypto-focused funds totaled around $9 billion. Overall, its total assets under management for all investments topped $54.6 billion.
Sequoia Capital and Tiger Global also posted some big numbers, with $85.5 billion and $124.7 billion, respectively. Tiger saw a 58% increase from $79.1 billion in its filings from last year.
The findings come after a recent report that venture capital money is pouring into crypto. In 2021, $25.2 billion worth of venture capital funding went to global blockchain startups, a 713% increase from the $3.1 billion in 2020.
Expectations could be greater for 2022. In January, a16z revealed that it is gearing up to raise $4.5 billion for its latest fund focused on cryptocurrencies. Venture capital firms are also keenly looking at Solana’s nonfungible token (NFT) offerings for further opportunities.
The Solana network offers significantly lower transaction costs than Ethereum at faster speeds, and a few Solana-based gaming and NFT companies are seeing big money from VCs, according to reports.
Fractal, a Solana NFT gaming marketplace, raised $35 million on Friday in a round led by Paradigm with participation from a16z. Magic Eden, a popular Solana NFT market, raised $27 million in a Series A round in mid-March also led by Paradigm, with other funds coming from Sequoia Capital.
Tiger Global Leads $350 Million Investment In Near Protocol Blockchain
The crypto outfit had raised $150 million just three months prior.
The blockchain developer Near Protocol raised $350 million, more than double what it got just three months ago. The investment, led by Tiger Global, is a sign of the frenzy surrounding crypto startups.
Near Protocol’s market cap as of Tuesday was more than $10 billion, according to data from the cryptocurrency tracker CoinGecko. Near investors plan to announce the new funding on Wednesday.
Its backers see the deal as a signal that a wider variety of investors have faith in the blockchain’s ability to be an underpinning of a decentralized web.
A check from a firm like Tiger Global “obviously means they feel Near might be one of the protocols that can take over the world,” said Amos Zhang, a partner at MetaWeb VC, which focuses on investments that are part of the blockchain’s wider ecosystem.
Near’s $150 million round in January was largely funded by crypto-native investors. Near is distinctive, in part, for its emphasis on being easy to use for a broad audience, said Zhang. Over time, he hopes that effort makes the transition from today’s web to a more crypto-based future more seamless.
More immediate, though, is the Russian invasion of Ukraine, which rattled the crypto company. Near’s Ukrainian co-founder, Illia Polosukhin, worked with a team to help move at least 50 people out of the country and organized a charity that raised more than $10 million to pay for medicine, food and evacuation efforts.
Ukraine, a country with a thriving crypto scene, has seen entrepreneurs and tech leaders rally to organize grassroots support for troops and refugees. Polosukhin, who is now in Portugal, was part of a wave of millions of Ukrainians to leave the country in recent weeks.
Former Citigroup Executives Seek $100 Million For Crypto Hedge Funds
* Kriete, Girasole Made Waves Last Month When They Left The Bank
* ‘Clients Are Hungry For Returns,’ Kriete Says Of Crypto Space
A trio of former Citigroup Inc. executives who left the bank last month have formed Motus Capital Management, a firm that wants to make it easier for high-net-worth individuals to bet on cryptocurrencies.
Alex Kriete, Greg Girasole and Frank Cavallo are seeking to raise $100 million for a pair of actively managed hedge funds that will focus on digital assets, the three said in interviews. They are each founding partners of Motus, the Latin term that’s the origin of the word “motor.”
“Clients are hungry for returns,” Kriete said. “They’re wanting exposure, but they have a hard time telling what’s scammy and what are real investment opportunities.”
Kriete and Girasole made waves last month when they left Citigroup less than a year after being picked to oversee a new digital-assets group inside the Wall Street giant’s wealth-management division.
Before that, Kriete managed $3 billion and Girasole $5 billion for Citigroup private-bank clients. Cavallo was most recently an investment counselor at Citigroup, where he oversaw $8 billion of assets and held roles inside the firm’s cross-asset sales and trading division.
The three will invest their own wealth in the Motus funds, they said in the interviews. The funds will not self-custody — meaning they won’t hold control of the private keys for their digital assets — and will limit the assets they hold with exchanges as part of their efforts to satisfy due-diligence processes with sophisticated investors.
“We are working with best-in-class providers to meet the fiduciary standard our clients expect,” Girasole said.
New York-based Motus intends to offer both growth and income funds. The growth fund will focus on investing in tokens with smaller market capitalizations that larger funds find it harder to invest in, Cavallo said.
“We think we hit the sweet spot,” he said. “With assets like Bitcoin and ETH, clients can do that on their own. They don’t need to pay someone to buy Bitcoin.”
Crypto hedge funds are a nascent part of the broader asset-management industry. Globally, such funds have about $3.8 billion in assets under management, according to a report by PwC. Less than half of all crypto hedge funds have assets under management of more than $20 million, PwC found.
Cavallo, Girasole and Kriete are part of a growing exodus from New York-based Citigroup for the world of cryptocurrencies.
Matt Zhang, who was co-head of Citigroup’s structured-products trading and solutions division, left in October to start a fund that trades digital assets and makes venture investments in crypto companies, while Christopher Perkins, the former co-head of Citigroup’s futures, clearing and foreign-exchange prime-brokerage businesses, was hired in August as a managing partner and president by CoinFund, a blockchain-focused investment firm.
Sabrina Wilson, former co-head alongside Perkins, was named chief operating officer of Copper, which offers custody and prime-brokerage services for digital assets.
Fidelity To Offer Exposure To Metaverse, Digital Payments With New ETFs
The funds will give clients exposure to metaverse and digital payment-related companies.
Fidelity Investments, the world’s fourth-largest asset management company, said it plans to offer two exchange-traded funds (ETFs) for investors to gain exposure to the broader crypto, blockchain and digital payment ecosystems.
The Fidelity Metaverse ETF (FMET) will normally invest at least 80% of assets in securities included in the Fidelity Metaverse Index, along with depositary receipts representing securities included in the index, the firm said in a statement Tuesday.
The Fidelity Crypto Industry and Digital Payments ETF (DIG) will have a similar exposure to companies related to crypto, blockchain technology and digital payments processing.
“We continue to see demand, particularly from young investors, for access to the rapidly growing industries in the digital ecosystem, and these two thematic ETFs offer investors exposure in a familiar investment vehicle,” Greg Friedman, Fidelity’s head of ETF management and strategy, said in the statement.
Trading in the funds is likely to start around April 21, Fidelity said. Both will be passively managed.
The firm, which has about $4.2 trillion in assets under management, filed an application for a metaverse ETF late in January. The same month, the U.S. Securities and Exchange Commission refused to approve a Fidelity spot bitcoin ETF in the U.S., though the firm’s Canadian arm has one listed in Canada.
The firm’s digital division, Fidelity Digital Assets, launched in 2018 and features custody and trade execution for institutional investors.
BlackRock Joins Stablecoin Issuer Circle’s $400M Funding Round
Already being the primary asset manager of USDC cash reserves, BlackRock will now also be exploring capital market applications for the USDC stablecoin.
Circle, a major peer-to-peer payments firm and the principal operator of the UDC Coin (USDC), has announced a $400 million funding round and a new partnership with the American investment firm BlackRock.
The USDC issuer has entered into an agreement for a funding round featuring investors like BlackRock, the investment advisory firm Fidelity Management and Research, the London-based hedge fund Marshall Wace and Fin Capital, as Circle officially announced Tuesday. The investment round is expected to close in the second quarter of 2022.
Apart from providing strategic investment and being the primary asset manager of USDC cash reserves, BlackRock has inked a broader strategic cooperation with Circle. The partnership specifically envisions exploring capital market applications for USDC, the announcement notes.
The funding aims to promote Circle’s development amid the growing demand for the United States dollar-based digital currency. USDC is one of the fastest-growing dollar digital currencies, reaching $50 billion market capitalization in February 2022 after launching in September 2018.
At the time of writing, Circle is the second-largest stablecoin by market cap, following only Tether (USDT) and is the fifth-largest cryptocurrency by value, according to data from CoinGecko.
“This funding round will drive the next evolution of Circle’s growth. It’s particularly gratifying to add BlackRock as a strategic investor in the company. We look forward to developing our partnership,” Circle co-founder and CEO Jeremy Allaire said.
a16z’s Chris Dixon Tops ‘Midas List’ By Turning $350M Into $6B In 2021
Chris Dixon has topped the Forbes “Midas List” as the most successful venture capital investor in 2022.
Crypto venture capital firms have been investing at unprecedented rates recently, and Andreessen Horowitz (a16z) is one of the industry’s leaders making huge returns on their investments.
Andreessen Horowitz general partner Chris Dixon has topped the Forbes “Midas List” of the world’s best venture capital investors in 2022.
Seldom does a crypto or Web3 funding round finalize without a16z being involved somehow. According to a Tuesday report, Dixon turned the $350 million Crypto Fund I into realized and unrealized gains of $6 billion in 2021. That equates to an eye-watering 17.7x gain, according to “sources with knowledge of the fund’s financials.”
By comparison, the overall cryptocurrency market itself only managed a 200% gain from $780 billion on January 1, 2021, to $2.3 trillion by the end of December 2021.
A16z got into crypto early, leading a $25 million funding round into Coinbase in 2013. By the time Coinbase went public in April 2021, the firm had held a 15% stake following 14 more funding rounds. The shares were worth $10 billion on the first day of trading, resulting in a 60x return for the company.
However, this was several years before Dixon’s crypto fund was launched in June 2018, with $300 million raised in total at the time, according to Crunchbase.
There have been other notable investments by a16z including decentralized exchange Uniswap, the Avalanche blockchain, nonfungible token (NFT) creator Dapper Labs and Ethereum staking platform Lido, all of which have surged in valuation or collateral since.
Dixon, Who Rarely Appears For Interviews, Told Forbes:
“My job is not to predict the future. My job is to be smart enough to know who the smart people are who will.”
The company is currently raising funds for the world’s largest crypto fund, worth a whopping $4.5 billion. In January, the firm said it planned to raise $3.5 billion for the fund, in addition to another $1 billion for Web3 seed investments.
Journalist Alex Konrad said that a16z “plans to roll back its crypto fund into the firm — making crypto core to its main funds, akin to cloud or the internet.”
Concerns have been raised by some crypto industry observers that too much venture capital involvement and investment in a project may erode its decentralization. A16z’s holdings of the UNI tokens and sway in governance votes for has been a particular issue. But, either way, the crypto industry’s most prominent VC firm is still hunting for new investment opportunities in the sector.
Crypto Startup Blockchain.Com Planning 2022 IPO
Blockchain.com would be just the second crypto exchange to go public in the U.S. if it can perform an IPO before Binance.US.
Crypto exchange and block explorer Blockchain.com has begun talking with United States banks to explore how it may hold an initial public offering (IPO) as soon as this year.
Bloomberg reported on Tuesday that sources familiar with the situation said that the talks were merely preliminary conversations and that the tech startup’s plans could change at any time.
If it succeeds in going public with an IPO, it would be only the second crypto exchange in the U.S. to pull off the feat. Coinbase was the first to go public in 2021 at an opening price of $381 per share of the native token COIN with a valuation of nearly $100 billion.
Blockchain.com is currently valued at about $14 billion following a funding round with global venture capital firms.
Blockchain.com is a cryptocurrency financial services company that began as the first Bitcoin block explorer in 2011 and later created a popular crypto wallet application.
The race to be the second public crypto exchange in the U.S. is now on. Binance.US, the American branch of the largest crypto exchange in the world, also plans on going public as soon as it can demonstrate independence from the primary exchange, according to Binance founder Changpeng Zhao.
Aiding in the exchange’s efforts is a recent $200 million seed round of funding that awarded it a pre-money valuation of $4.5 billion.
Regulatory complications have been the main hindrance keeping crypto exchange juggernauts from going public in the U.S.
Binance.US CEO Brian Shroder argues that the firm has a strong business and is working with local regulators to ensure it can list without complications.
Wall Street Firms Make Crypto Push To Catch Up With ‘Cool Kids’
* Jefferies Expands Services, Blackrock Backed A Stablecoin Firm
* Regulation, Compliance Hinder Banks As Competition Mounts
On Wall Street, Jefferies Financial Group is expanding banking services for crypto clients, BlackRock Inc. is backing a stablecoin firm while Goldman Sachs Group Inc. is ramping up crypto trading. There’s even a former bank executive who switched his LinkedIn profile — to an avatar.
The moves by financial heavyweights — and one banker’s profile reinvention — underscore how far Wall Street firms have come in accepting cryptocurrencies. For years, executives at banks and money managers were some of the industry’s most vociferous dissenters, until soaring prices and a flood of investor money drove home the point that staying on the sidelines meant missing out.
But as demand rises, that earlier resistance could impede Wall Street’s latest efforts to stay competitive, just as regulatory uncertainty and internal compliance cloud expansion plans. Goldman’s Chief Executive Officer David Solomon said this month the bank was taking its cue from regulators, calling their guidance “very restrictive and very, very small.”
“Banks are forever going to be trying to play catchup,” said Michael Moro, CEO of digital currency prime brokerage Genesis. “Crypto is going to move way faster than banks can. We have every bank in the world pretty much having some sort of crypto, blockchain working group.”
Institutional investors traded $1.14 trillion of cryptocurrencies last year on the largest U.S. crypto exchange Coinbase Global Inc., a ninefold increase from 2020.
Main Street’s deepening uptake has intensified scrutiny: Treasury Secretary Janet Yellen cautioned this month about potential excesses or systemic risks stemming from a market where financial transactions use crypto and blockchain, while President Joe Biden in March issued the first executive order targeted at digital tokens to help address possible hazards.
On Wall Street, efforts made over the past year or so are coming to fruition. Jefferies, which already provides leverage finance, equity capital markets and convertible bond issuance services for crypto clients, plans to expand in the next couple of months as demand rises, said Alexander Yavorsky, the firm’s global joint head of financial institutions.
Yavorsky and two other senior bankers are on a quasi-crypto team set up to beef up the bank’s effort. Jefferies is also exploring offering crypto services in trading, prime brokerage and wealth management, he said.
This month, BlackRock joined a $400 million funding round in stablecoin firm Circle and struck a partnership with the company to explore capital-markets use of USD Coin, a stablecoin pegged to the U.S. dollar.
Earlier this year, trading powerhouse Citadel Securities won its first outside investment from two Silicon Valley investors with crypto expertise.
And Goldman, which traded its first over-the-counter Bitcoin options in March, has a digital-assets team working on trading, the tokenization of traditional asset classes and strategic investments among other initiatives, according to a webinar with clients this month.
These measures follow an uncomfortable relationship between Wall Street and cryptocurrencies, which were created after the 2008 financial crisis as an attempt to bypass the regulated banking system. Lenders largely stayed away as Bitcoin prices whipsawed between huge gains and steep crashes.
JPMorgan Chase & Co. CEO Jamie Dimon deemed Bitcoin a fraud in 2017, comments he later said he regretted. In October, he said it was worthless but that he’d follow clients and recently acknowledged that decentralized finance — where banks are replaced by algorithms — is “real.”
As some dive into the industry, they’re facing mounting competition. Large banks are still not yet trading Bitcoin itself, unlike many crypto firms, though some have ventured into its derivatives.
Goldman last year began offering trading in non-deliverable forwards, contracts which pay out in cash and cater to clients not yet comfortable with buying cryptocurrencies.
By the time it launched, a number of hedge funds had enough confidence to just buy the crypto directly, according to a person familiar with the matter, who asked not to be identified discussing private information.
“It’s possible that you will see banks starting something, and then realize that by the time they got ready to launch, their clients’ interests have gone elsewhere in crypto,” Moro said.
Given the layers of legal, compliance, trading and technology work required, expanding into crypto was a “Herculean effort” for boutique investment bank Cowen Inc., which started its digital assets unit in March after a year of preparation, according to Drew Forman, who runs the division.
Besides wealth management, trading and advisory, a next step for banks could be wholesale lending to crypto firms, according to Damien Vanderwilt, co-president of Galaxy Digital Holdings, who sees this change coming by year-end. It would entail lending to crypto companies that provide the virtual currencies as collateral.
Whatever their moves, banks are being watched closely. A banking trade group said recent Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency requirements could make it harder for banks to develop offerings, handing crypto firms an advantage.
Biden’s recent executive order was seen as encouraging, but more guidance is needed before banks can move forward “in any significant manner,” said Nicholas Losurdo, a partner at law firm Goodwin Procter.
Wall Street is also trying to retain talent that’s leaving for the crypto industry, lured by potentially richer rewards, flexible work and front-row seats to innovation.
Citigroup Inc. lost at least a dozen executives across the firm in the past year, including its recently appointed co-heads of the digital-assets group within its wealth-management division. They started their own crypto hedge funds this year.
The bank plans to hire 100 people in digital assets within its institutional business. A spokeswoman for the bank said it’s expanding its digital-asset capabilities and has made strategic investments to meet client demand.
One former Goldman vice president who made the leap to web3, the catchall term for crypto startups, decentralized finance and more, switched out his LinkedIn profile for a Bored Ape picture — a famous nonfungible token. Ajit Tripathi is now an angel investor in crypto.
“It’s a way to signal you are a web3 native person,” he said. “You are one of the cool kids.”
SkyBridge Goes All In On Crypto, Betting On ‘Tremendous Growth’ Ahead
“For us, we think the cryptocurrency markets represent tremendous growth,” said SkyBridge founder Anthony Scarramucci.
SkyBridge Capital is working on pivoting the majority of its assets under management (AUM) to digital assets, as the sector represents “tremendous growth” for the firm.
The hedge fund was founded by former United States politician Anthony Scaramucci in 2005 and first delved into Bitcoin (BTC) in late 2020.
The firm also has money deployed in other hedge funds, late-stage private tech companies and real estate, with its total AUM reported being around $7.3 billion.
Skybridge now manages a $7 million Bitcoin Fund among others, and has been actively working to get a spot BTC exchange-traded fund (ETF) approved by the U.S. Securities and Exchange Commission (SEC).
Speaking with Bloomberg in the lead up to the annual SkyBridge Alternatives Conference (SALT) this week, Scaramucci said that the firm is repositioning itself to “eventually be a leading cryptocurrency asset manager and adviser:”
“We made a decision during the pandemic that we had to relitigate our entire portfolio. There’s a pre-pandemic world and a post-pandemic world, and a post-pandemic world has a lot more government deficits—it has a lot more uncertainty related to growth.”
“For us, we think the cryptocurrency markets represent tremendous growth. It comes with volatility, certainly, but I think over the three to five years, we’d like that trajectory,” he added.
SkyBridge’s director of business development John Darsie noted that the firm’s growing focus on crypto was brought about due to a “huge drawdown in the credit portion” of the firm’s hedge fund manager portfolio.
Seeking out investments in stronger growth-oriented managers, the firm is now looking for allocations across many crypto assets and blockchain projects, with Darsie noting that the SkyBridge is “extremely bullish on the sector.”
“What we decided to do was a portion of that capital that was previously allocated to credit managers was invested directly into crypto assets like Bitcoin and Ethereum—but then also rotate capital into crypto-asset managers like Multicoin, Polychain, Pantera, people of that nature,” he said.
The bullish comments come just weeks after Scaramucci noted that the blockchain industry has a very bright future but was concerned by some “absolutely despicable” U.S. politicians that could hamper the growth of the local sector.
Speaking on the SEC with Bloomberg, however, Scaramucci seemed relatively optimistic that the agency will approve a spot BTC ETF once a few more factors fall into place while also noting that its application denial in January was not necessarily “specific” to them.
“I think the SEC is taking the position that because the cash trading of Bitcoin is happening all over the world, that they don’t have a one-market clearing for all buys and sells. So they’re worried about price manipulation.”
“But over time, because of the transparency of the markets, I think they’re going to get more comfortable with it,” he added.
Q1 2022 Venture Capital Activity In Crypto Set To Outpace 2021
All the deals, trends, moves and investments in Q1 2022 across the blockchain landscape, brought to you by Cointelegraph Research.
The first quarter of 2022 saw unprecedented growth in terms of venture capital activity in different blockchain sectors. In 2021, venture capitalists poured in over $30 billion into infrastructure, nonfungible tokens (NFTs), decentralized finance (DeFi), centralized finance (CeFi) and Web3.
That set the bar pretty high if 2022 was going to beat it. In the first quarter of 2022, capital inflows from venture capitalists were over $14.6 billion, or around 48% of all the capital investment by the last year.
Over 500 individual deals were struck in the first three months of 2022 throughout the five major sectors listed above.
Cointelegraph Research studied and analyzed its database of deals, mergers and acquisitions activity, investors, and crypto companies to produce a 12-page report on the major VC activities in the crypto sphere.
Leaving 2021 Behind
Anyone interested in cryptocurrencies, blockchain and the future of this industry should pay close attention to the contents of this report. By studying what venture capitalists are doing and knowing the players who are investing in projects, and which platforms are being invested in, individuals can help stay on top and make informed decisions.
It takes more than just great technology for people to use a product. History is filled with great products that just did not have the right mix of marketing, management or capital to bring them successfully to market.
Venture capitalists aim to resolve these issues by investing more than just the capital needed to get a project off the ground but also provide a network of contacts that can provide solutions to the correct marketing and strategic management mix.
The Cointelegraph Research Terminal, together with Keychain Ventures, brings you a report that dives into the first three months of 2022. The 12-page report by Cointelegraph Research analyzes the most active investors, M&A, largest deals and new funds in Q1 2022.
Record-Breaking Number And Value Of Deals
The first quarter of 2022 saw an unprecedented amount of capital inflows in the blockchain industry. Since the start of 2021, each quarter has continuously increased the total capital invested in this space, culminating in Q1 2022, which ushered in over $14.6 billion in VC investment.
Each deal’s average U.S. dollar value has also increased and now stands at around $32.3 million for the last three months.
The number of individual deals also rose and broke the previous record, reaching over 500 in Q1 2022. The increase is likely to continue to trend higher, as the space is attracting new funds from Bain Capital and Sequoia Capital, long-time venture capital firms in traditional markets.
The industry also saw consolidation through acquisitions by long-time crypto players like OpenSea, Coinbase, Fireblocks, FTX and Blockchain.com. In all cases, these strategic purchases expand the reach of each of the firms’ core business offerings.
The recently formed funds like Bain Capital and Haun Ventures are focused primarily on Web3 projects, which, interestingly enough, had the most involvement in 2022’s first quarter and overtook the DeFi sector — the usual leader. CeFi continues to be the least active in terms of the number of deals and capital inflows of all the different sectors.
The most active investors are more evenly distributing their investments across two or three different sectors, which changed from the patterns seen in 2021. This potentially shows a maturing of VC strategy; but still, these equal allocations are across DeFi, Web3, NFTs and infrastructure, with much less being invested in CeFi.
Active Seed Rounds, But Expansion Rounds See The Most Capital Interest
Pre-seed and seed rounds had the most VC activity at 288 individual deals with over $2.1 billion. Watching the development in these rounds is promising for the entire industry, as each startup brings new applications for the blockchain and new competition for previously formed organizations.
Expansion rounds did not see as much activity but recorded over 2.5x the capital inflows at almost $5.8 billion. These rounds help to encapsulate the overall growth potential and reach of the current blockchain projects, which most VCs are willing to pour money into as they are less risky than earlier stage investments, like Series A rounds.
Blockchain Needs The Right People
One issue intensified by all this capital investment is the need for people and talent in the blockchain space. As more companies have plans to expand, create new products and diversify their organizations, employees with the right skills are becoming harder to find. Cointelegraph Research recently interviewed Keychain Ventures and Dragonfly Capital.
In that conversation, many topics were discussed, including the bottleneck of human capital, which will only get further strained as more investment pours into the industry.
Quarterly VC Reports From Cointelegraph Research Terminal And Keychain Ventures
The report pulls from Cointelegraph Research Terminals’ expansive database along with analysis from Michael Tabone, an economist from Cointelegraph Research. Michael has an extensive background in economics, business, finance, cryptocurrency, blockchain technology and working with emerging technologies. Besides working for Cointelegraph Research, Michael is a Ph.D. candidate working on his dissertation, which is focused on the theory and application of DAOs.
Keychain Ventures is a crypto investment firm that engages in investing different funds in the blockchain space. Keychain Ventures, along with Cointelegraph Research, will be presenting quarterly interviews with VC firms as well as crypto/blockchain projects which have recently gone through a funding round. These interviews will open up different viewpoints of investment practices from all parties.
WisdomTree’s Q1 Crypto Assets Managed Increases by 23% To $324M
However, the crypto assets managed declined 20% compared to the previous quarter.
Asset manager WisdomTree (WETF) said that it managed an average of $324 million worth of crypto assets in the first quarter of 2022, an increase of nearly 23% on the equivalent figure of $264 million a year ago.
* However, the crypto assets managed in the first quarter decreased 20% compared to the average of $406 million in the previous quarter.
* WisdomTree recorded a net loss of $10.3 million across all aspects of its business for the quarter ending March 31, compared to profit of $15.1 million for the year-earlier period. The figure also compares to net profit of $11.2 million in the quarter ended Dec. 31, 2021.
* In March, WisdomTree listed exchange-traded products tracking Solana’s SOL, Cardano’s ADA and Polkadot’s DOT on Swiss SIX stock exchange.
* The asset manager’s attempts to list a spot bitcoin exchange-traded fund (ETF) in the U.S. continue to be frustrated however, with the Securities and Exchange Commission (SEC) delaying its decision on the application in March.
Wall Street Reluctantly Embraces Crypto
Money managers want banks to store and trade crypto for them.
Wall Street has a message for its many clients that have been eager to invest in cryptocurrencies: OK, OK, we hear you.
The largest U.S. banks, securities firms and custodians, many of whom once greeted the emergence of digital assets with skepticism, are now showcasing their forays into the market.
“It’s a moment in time when the traditional industry has woken up and more broadly accepted this is happening,” said Walt Lukken, president and chief executive of the Futures Industry Association, a large trade group for the derivatives markets.
Their recent conversion, industry executives said, has less to do with any epiphany about crypto’s utility than it does a simple reality: They don’t want to lose the business to rivals.
Hedge funds and other professional investors were already trading cryptocurrencies, but many money managers—from mutual-fund giants to pension funds—are increasingly eager to find a way into the crypto markets, executives said. Inflation and rising interest rates have damped expectations for returns on stocks and bonds, making cryptocurrencies more attractive.
Now the money managers, banks’ biggest clients, want to pay them to trade and lend, structure and safeguard crypto. They are uneasy with relying on crypto startups on transactions that involve other people’s money and want mainstream financial firms to settle into their traditional roles as intermediaries. Wall Street’s participation, investors say, might bring stability to the nascent markets.
“It’s gotten to the point where everyone is at some point in the journey,” said Mike Demissie, head of digital assets and advanced solutions at Bank of New York Mellon Corp. “If they’re not actively investing [in crypto], then they’re exploring it.”
In response, most banks and custodians are working on plans to move forward with handling crypto—at different paces.
Firms such as Fidelity Investments and Cowen Inc. have started storing and trading cryptocurrencies, either on their own or through ventures with digital-asset startups. Last week, Fidelity announced plans to allow individual savers to add bitcoin to their 401(k)s. The U.S. Labor Department argued the offering would risk Americans’ retirement security.
BNY Mellon and rivals such as State Street Corp. are building capabilities to store and trade bitcoin and other digital assets while they await U.S. and state regulatory approvals that they say will allow them to go live with those services for institutional clients. They expect that to happen as soon as this year.
Investment banks, including Goldman Sachs Group Inc. , have said they also need more regulatory input before they can handle cryptocurrencies directly.
In the meantime, Goldman has started executing trades on both over-the-counter bitcoin options as well as futures listed with CME Group Inc., operator of the world’s biggest derivatives exchange. The bank also recently made a loan that was secured by the borrower’s bitcoin holdings.
Regulatory uncertainty is not the only reason many mainstream financial firms have waded gingerly into the crypto world. Inside these firms, the crypto skeptics can still outnumber the crypto curious.
In recent years, bitcoin has been derided as both “worthless” by Jamie Dimon, CEO of the largest U.S. bank, JPMorgan Chase & Co., and “rat-poison squared” by Berkshire Hathaway Inc. CEO Warren Buffett, perhaps Wall Street’s best-known investor.
Some firms don’t feel compelled to lead the charge into a new market, opting instead to wait for the moment when there are enough fees to justify the risks.
“They all understand something revolutionary is taking place that will impact parts of their business model,” said Damien Vanderwilt, co-president of Galaxy Digital Holdings Ltd. , a firm that provides trading and advisory services to digital-asset companies and runs its own crypto investing business.
“When they stop and think, `What do we do about it,’ the answer for most banks is that the opportunity today is not big enough to take the reputational risks of being early.”
Jeffrey Solomon, Cowen’s chairman and chief executive, said institutional investors are taking the same path they did more than 50 years ago, when stocks were largely held in personal accounts and the market struggled to handle surges in trading volume.
Advancements in computer power helped change all of that, leading to huge growth in stock-investing products managed by professionals, he said. Big-money investors—and the banks and brokers who serve them—find themselves at a similar crossroads, he said.
At the Futures Industry Association’s recent annual conference, crypto was everywhere. Crypto firms sponsored the event, and their executives sat on panels. Their presence didn’t go unacknowledged by the industry’s old guard.
While many attendees congregated in the lobby of the Boca Raton Resort & Club in mid-March, CME Chairman Terry Duffy approached FTX crypto exchange founder Sam Bankman-Fried for a quiet chat. “All eyes were on them,” one attendee said.
Brazil’s Largest Digital Bank Nubank Reaches 1M Crypto Users After Just A Month
Updated: 2-15-2022: Warren Buffett “Oracle of Omaha” Invests $1B In Bitcoin-Friendly Neobank (AKA: Nubank) the largest fintech bank in Brazil that’s also popular among the country’s Bitcoin investors. Warren Buffett’s Berkshire Hathaway now has more companies in his portfolio that have direct/indirect exposure to Bitcoin and similar cryptocurrencies.
The company reached the milestone in July, 11 months ahead of schedule, and is also exploring asset tokenization.
Nubank, the largest Brazilian digital bank by market value, reached 1 million users on its crypto trading platform just one month after launching in June, the company said on Tuesday.
The company had hoped to reach the milestone within a year, after launching Nucripto in May and making it available to its 46.5 million users in June.
The platform allows users to buy and sell bitcoin (BTC) and ether (ETH) through a crypto-trading and custody service provided by Paxos’ blockchain infrastructure.
In May, the company announced it was allocating roughly 1% of the cash on its balance sheet to bitcoin to demonstrate its belief in the cryptocurrency.
“Nubank has, in eliminating complexity, a value proposition that permeates all our products. With crypto activities, this becomes even more relevant due to the fact that it is a market with complex systems that make it difficult for people interested in taking their first steps to join,” Thomaz Fortes, leader of Nubank’s crypto area, said in a statement.
On Monday, the Mexico-based crypto exchange Bitso also announced it had reached 1 million users in Brazil, a market where it competes with leading local exchange Mercado Bitcoin, which has more than 5 million users in the South American country.
Nubank is also targeting the tokenization market, Nubank CEO David Vélez told Brazilian media outlet NeoFeed on Tuesday, without disclosing further details.
Last week, Itaú Unibanco, Brazil’s largest private bank, said that it plans to launch an asset tokenization platform that transforms traditional finance products into tokens.
Other major fintech players have also entered the crypto sector recently. In July, the Brazilian fintech PicPay, which has more than 30 million active users, announced it plans to launch a crypto exchange and a Brazilian real-tied stablecoin in 2022.
And in December, Mercado Libre, Latin America’s largest e-commerce company by market value, started allowing users in Brazil to buy, sell and hold cryptocurrencies.
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