Sebastian Sinclair

David Canellis

The US Securities and Exchange Commission (SEC) has long been a thorn in the side of the crypto ecosystem — and chairman Gary Gensler represents the very tip.



Securities regulations and the token economy don’t exactly mix. SEC watchdogs still map digital assets to the 76-year-old Howey Test with varying success: small-time operators are often stung while major cases tend to end in settlement.



The SEC issued <a href="https://www.sec.gov/files/dlt-framework.pdf" target="_blank" rel="noreferrer noopener">guidance</a> on how it squares digital assets with Howey back in 2019. Gensler has previously stated that most tokens on the market could be securities or investment contracts, bar bitcoin and potentially ether — toeing the line etched by his predecessor Jay Clayton.



&#8220;Nothing about the crypto markets is incompatible with the securities laws,&#8221; says Gensler. But until the SEC builds a clear and novel framework in which to operate, tailored specifically for the crypto space, startups and their legal teams must read between the lines before launching in US jurisdictions.



Many firms nix the US altogether (and New York especially so) to avoid sudden SEC strikes. Crypto exchanges too are also unsure which tokens are indeed securities. This leads to fewer listings on US platforms compared to offshore counterparts operating in comparatively lax jurisdictions.&nbsp;



Clear regulations have rarely felt so important, now, some three weeks after the FTX calamity. But what does Gensler’s SEC career thus far reveal about what’s in store for the digital asset space?



<h3>2021: Gensler pushes for broader SEC powers to police crypto</h3>



President Joe Biden first nominated Gensler to the role of SEC chair in Feb. 2021, a move ratified by the Senate two months later. Years earlier, Gensler was <a href="https://www.youtube.com/watch?v=EH6vE97qIP4" target="_blank" rel="noreferrer noopener">teaching</a> blockchain and crypto topics at the Massachusetts Institute of Technology, with his lectures still available online.



“I would be surprised if 10 years from now [blockchain] isn’t somewhere in the financial system in a meaningful way,” Gensler <a href="https://www.nytimes.com/2018/04/22/technology/gensler-mit-blockchain.html" target="_blank" rel="noreferrer noopener">said</a> in 2018. Gensler previously served as chairman of the Commodity Futures Trading Commission (CFTC) for nearly five years, between 2009 and 2014. 



His resume, combined with a working understanding of blockchains and cryptocurrencies, had some hopeful of a more nuanced SEC.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">If crypto is going to be widely adopted, it needs some rules of the road &amp; a cop on the beat to enforce them. To be clear, I am technology-neutral. What I&#39;m not neutral about: Investor protection. <a href="https://t.co/e6GsSAyXhB">pic.twitter.com/e6GsSAyXhB</a>&mdash; Gary Gensler (@GaryGensler) <a href="https://twitter.com/GaryGensler/status/1422607603708870663?ref_src=twsrc%5Etfw">August 3, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>SEC chair Gary Gensler appeared in a number of short clips detailing the SEC&#8217;s view on crypto last year.</figcaption></figure>



But the veteran regulator still inherited the Ripple Labs case, arguably the most significant SEC action since <a href="https://www.sec.gov/news/press-release/2019-202" target="_blank" rel="noreferrer noopener">Block dot one</a> back in 2019. The matter, which declares XRP a security, was pushed by former chair Clayton some 16 months prior to Gensler’s appointment.



The Ripple case could be headed for summary judgment after nearly two years of legal squabbling, with the outcome set to impact the crypto industry more than the Block dot one settlement.



In fact, there were only a handful of crypto-related SEC actions under Gensler in 2021, including charging promoters of <a href="https://www.sec.gov/news/press-release/2021-172" target="_blank" rel="noreferrer noopener">BitConnect</a>, a fraudulent crypto scheme from 2018, and <a href="https://www.sec.gov/news/press-release/2021-237" target="_blank" rel="noreferrer noopener">operators</a> of a phony investment firm promising outsized returns through digital asset trading.



Gensler’s first year at the SEC is more appropriately surmised as a push for a wider purview. The SEC had historically focused on token-related cases involving fraud or harm to investors, but Gensler made his case to Senator Elizabeth Warren last August for Congressional authority to police crypto exchanges, DeFi protocols and centralized lenders, claiming that many deal in unregistered securities.&nbsp;



Patrick McHenry, top Republican on the House Financial Services Committee, quickly labeled the move a “<a href="https://republicans-financialservices.house.gov/news/documentsingle.aspx?DocumentID=408074">blatant power grab</a>.”



One month later, top US crypto exchange Coinbase announced it would cancel plans to launch a crypto lending product after the SEC threatened legal action.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">7/ Look….we&#39;re committed to following the law. Sometimes the law is unclear. So if the SEC wants to publish guidance, we are also happy to follow that (it&#39;s nice if you actually enforce it evenly across the industry equally btw).&mdash; Brian Armstrong (@brian_armstrong) <a href="https://twitter.com/brian_armstrong/status/1435439676429537281?ref_src=twsrc%5Etfw">September 8, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>Coinbase CEO Brian Armstrong remained defiant in the face of SEC&#8217;s legal threats</figcaption></figure>



Coinbase Lend accounts would’ve offered users up to 4% interest on USDC deposits, but Gensler’s SEC deemed the products securities, a view emphatically denied by Coinbase.&nbsp;



The SEC’s action against Coinbase over Lend only ever amounted to a Well’s Notice — basically written intention to sue if the product was launched — with no case actually filed.



<h3>2022: Coinbase case a Trojan horse for securities suits</h3>



Gensler’s SEC has been more prolific in its crypto cases this year. In January, Gensler <a href="https://www.bloomberg.com/news/articles/2022-01-19/crypto-exchanges-will-face-more-scrutiny-from-sec-gensler-says" target="_blank" rel="noreferrer noopener">directed</a> staff to figure out how to get “these platforms inside the investor protection remit,” amid emerging hints of probes into crypto lending products offered by Celsius, Voyager and Gemini.



One month later, the agency fined crypto lender <a href="https://blockworks.co/news/how-blockfi-went-from-tech-unicorn-to-crypto-burnout" target="_blank" rel="noreferrer noopener">BlockFi</a> $100 million for <a href="https://www.sec.gov/news/press-release/2022-26" target="_blank" rel="noreferrer noopener">failing to register</a> its own retail crypto lending product as a security. The case marks the first of its kind against crypto lenders, fulfilling in part Gensler’s intent outlined in his letter to Warren. 



Gensler again pushed the idea of greater crypto exchange oversight in Apr. 2022. He raised compelling trading platforms to register with the regulator while requiring segregation of asset custody to minimize risk of losses.



“There’s no reason to treat the crypto market differently just because different technology is used,” Gensler said at the <a href="https://www.sec.gov/news/speech/gensler-remarks-crypto-markets-040422" target="_blank" rel="noreferrer noopener">Penn Law Capital Markets Association’s annual conference</a> at the time. “These crypto platforms play roles similar to those of traditional regulated exchanges. Thus, investors should be protected in the same way.”



Of the 1,300 people working at the agency, roughly 30 were dedicated full-time to crypto enforcement. The SEC in May <a href="https://www.sec.gov/news/press-release/2022-78" target="_blank" rel="noreferrer noopener">pledged</a> to bolster its crypto headcount to 50, while Gensler criticized crypto exchanges for offering multiple services — custody, trading and market making — which is frowned upon in traditional markets. 



Reports have indicated that the SEC is investigating failed projects including Terra and the bankrupt crypto lenders, but the agency is yet to disclose enforcement actions against any of them.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">The SEC claims to be a &quot;cop on the beat&quot; for crypto. It should be! But unfortunately, as Jim Chanos puts it, they&#39;re more archaeologists than detectives: they wait until things go wrong &amp; then show up to dig for details. Case in point: ignoring Celsius, but going after BlockFi.&mdash; Jake Chervinsky (@jchervinsky) <a href="https://twitter.com/jchervinsky/status/1562788909238480896?ref_src=twsrc%5Etfw">August 25, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div><figcaption>SEC cases against big name failed projects could be on the horizon</figcaption></figure>



Instead, the SEC has brought seven cases related to cryptocurrency in 2022, aside from BlockFi. Some are on brand for the SEC and cover overt fraud, such as a $300 million <a href="https://www.sec.gov/news/press-release/2022-134" target="_blank" rel="noreferrer noopener">pyramid scheme</a> and a dodgy profit-sharing <a href="https://www.sec.gov/news/press-release/2022-37" target="_blank" rel="noreferrer noopener">scam</a> that reaped investments worth $124 million.



There’s also the charges against apex influencer <a href="https://www.sec.gov/news/press-release/2022-183" target="_blank" rel="noreferrer noopener">Kim Kardashian</a> for touting SafeMoon clone EthereumMax to her Instagram followers, echoing cases against Steven Seagal, Floyd Mayweather and DJ Khalid in years past. Both case genres are worthy pursuits.



The SEC’s action against a former Coinbase product manager over <a href="https://blockworks.co/news/ex-coinbase-employee-accused-of-insider-trading-pleads-not-guilty" target="_blank" rel="noreferrer noopener">alleged insider trading</a> appears more significant. For one, it’s a crypto exchange matter, which Gensler flagged intent to police. But the case could ultimately deem a string of tokens as securities, providing a springboard for future SEC enforcement — especially if the Ripple Labs case ends in anticlimactic settlement.



It’s this kind of regulation by enforcement that has much of the crypto industry at arms with Gensler’s SEC, with neither side appearing eager to meet in the middle any time soon.



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SEC Under Gensler: Crypto Power Grab or Effective Protection?

Casey Wagner

The US government sold off more than 9,800 BTC connected to the Silk Road darknet marketplace for about $215 million earlier this month, a court filing released Friday shows.&nbsp;



James Zhong pleaded guilty to hacking Silk Road in 2012 and stealing more than 50,000 BTC (worth less than $1 million at the time), which the government <a href="https://blockworks.co/news/us-government-now-has-more-btc-than-largest-crypto-holders" target="_blank" rel="noreferrer noopener">seized in November</a> 2022.&nbsp;



“In total from the Zhong investigation, the Government has obtained final orders of forfeiture for approximately [51,680.32 BTC], valued at over $3.4 billion at the time of seizure,” the court filing noted.&nbsp;



On March 14, the government sold about 9,861.2 BTC for around $21,800 per token. On this date, bitcoin was trading on most exchanges at a high of around $26,500 and a low of around $24,000, according to <a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">Blockworks Research</a>.



Government officials racked up more than $215,000 in transaction fees for the sale, court documents note. Officials added that they plan to sell the remaining 41,500 BTC ($1.2 billion) in a series of four batches this year. The method of sale wasn’t disclosed.



It is not the first time the US has sold off seized crypto. In 2014, officials unloaded around 30,000 BTC, also taken in connection with Silk Road, to venture capitalist Tim Draper.&nbsp;



The BTC was valued at around $17 million at the time of the auction, but today would be worth more than $850 million. A <a href="https://jlopp.github.io/us-marshals-bitcoin-auctions/" target="_blank" rel="noreferrer noopener">dashboard</a> tracking US government bitcoin auctions estimates more than $5 billion has been left on the table by selling BTC too early.



Bitcoin was trading about 1% higher Friday afternoon in New York following the release of the court filing, hovering around $28,450.



US authorities shut down Silk Road in October 2013, arresting maintainer Ross Ulbricht. He was sentenced to a double life sentence two years later without possibility of parole.



Updated Mar. 31, 2023 at 12:10 pm ET: Added auction dashboard.



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US Government Dumps Bitcoin Stolen From Silk Road, $1.2B To Go

Bessie Liu

Exotic derivatives protocol Cega Finance will be launching on Ethereum mainnet, branching out from its native Solana.



In traditional finance, exotic options fill the same role, more or less, as regular options — enabling leveraged longs and shorts on an underlying asset, but they can be used to achieve specific investment goals that cannot be accomplished with American or European options.



For example, Barrier options have a payoff that depends on whether the underlying asset price reaches a certain barrier level during the life of the option, while Asian options&#8217; payoff depends on the average price of the asset over a period of time.



“Exotic options are a natural evolution in an economic market,” Arisa Toyosaki, Cega Finance co-founder, told Blockworks. “They are a conditional option on top of a vanilla option.”



Seasoned investors can use exotic options to dial in risk preferences while trading a wider range of investment products.



<h2>Leveraged options vaults&nbsp;</h2>



Cega also supports structured vault products pitched to enable yields during volatile market environments.



The protocol will be offering a leveraged options vault (LOV) strategy, expected to launch within the second quarter. This option will be offered on top of the products which are already available to those on the Solana blockchain.&nbsp;



LOV is an options structured product that Toyosaki believes will resolve capital inefficiency in DeFi as it “does not require additional liquidity accessed through redemptions of user-funded margins or overcollateralization.”



LOV’s Gotta Go Fast offering, for example, offers a 21%&nbsp; to 30% APY. The underlying assets will be BTC, ETH and SOL, and Cega says it will offer a 50% principal protection barrier.



Toyosaki notes that in order to take a leverage position in the existing market, the amount of capital that must be staked — but never put to work — is significant.



“We created a method for our leverage options vaults that is extremely capital efficient and allows you to get a leveraged return by having a combination of options which can maximize your appetite for the market,” she said.



LOV liquidations work like this, <a href="https://www.blockworksresearch.com/">Blockworks Research</a> analyst <a href="https://www.blockworksresearch.com/research?author=ren">Ren Yu Kong </a>explains:&nbsp;



<ul>
<li>A user deposits crypto into a vault for a set time period of time — for example, 30 days; and&nbsp;</li>



<li>if BTC, ETH, or SOL drop by over 50% across that period, then;&nbsp;</li>



<li>the 50% principal protection barrier has expired, requiring collateral to be taken.</li>
</ul>



“From there, the vault takes the worst-performing asset. Say BTC decreased by 30%, ETH decreased by 45%, SOL decreased by 60%. Then the vault will return 40% (100-60) of your initial deposit,” Kong said.



On top of LOV, Cega is also launching a trading firm, Tras Mobian. The entity is designed to resolve one-sided demand issues in decentralized financial markets.



“If you look at every DeFi option vault in the market, everyone is focused on selling options. There hasn’t been a lot of demand for users buying options,” Toyosaki said.



This is where Tras Mobian comes in. It will be focused on research and development in the space, according to Toyosaki, with the hopes of creating more demand for both sides of the market.



Tas Mobian will run independently of Cega, the company notes. A third-party custodian will manage its multisig and oversee its balance sheets and audits.



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Solana Options Protocol Cega Comes to Ethereum

As regulation continues to heat up in the US, Genesis has teamed up with qualified custodian BitGo Trust on a tri-party solution for institutional clients, the companies announced Wednesday.&nbsp;



Under the agreement, BitGo Trust will provide qualified custody services and cold storage for assets held on behalf of Genesis&#8217; institutional clients, the companies said.&nbsp;



The teams are hoping to bring tried and true methods of security to the <a href="https://blog.bitgo.com/managing-counterparty-risk-importance-of-tri-party-collateral-management-in-crypto-714be0823590" target="_blank" rel="noreferrer noopener">crypto ecosystem</a>. 



“Institutions require a segregation of responsibilities. Trading, settlement, and custody need to be with separate institutions to minimize counterparty exposure,” Adam Sporn, head of prime brokerage at BitGo, told Blockworks. “In traditional finance, the credit crisis in 2008 led to a significant increase in tri-party relationships and we are seeing the same thing post-FTX in the digital asset space.”



The goal is to combine security with deep liquidity and trading expertise, Genesis added.&nbsp;



“Institutional clients are increasingly looking to trading partners that can mitigate their



concerns about counterparty risk exposure in the current environment,” Derar Islim, Genesis interim CEO, said. “With demand for a solution rising, we quickly understood that the clear path to meet this demand was to segregate credit and capital risk with regulated and qualified custodians.”&nbsp;



It’s not the first time Genesis and BitGo have teamed up. In 2019, Genesis Global Trading formed an agreement with BitGo to provide trading services from custody accounts.&nbsp;



Custody security and regulation concerns have ramped up since 2019, though, but both companies are confident in their level of compliance and transparency.&nbsp;



BitGo Trust offers a $250 million insurance policy and holds SOC 1 Type 2 and SOC 2 Type 2 certifications; compliance tools to measure risks associated with technology solutions.&nbsp;



“Institutional-grade custodial solutions are now expected to offer a suitable blend of the best available technology and the strongest reputational standards,” Gordon Grant, co-head of trading at Genesis, said. “Multi-signature, multi-party computation with hardware isolation, and cold-storage facilities have been part of an opening gambit for service offerings in this respect.”



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Genesis, BitGo Trust Collaborate on Custody Product for Institutions

Layer-1 blockchains have recovered strongly from December market lows, underlining their prominence as a paramount sector of the cryptocurrency industry. The native assets for key players like Ethereum, BNB Chain, Solana, and Avalanche have posted massive gains across the board, with investors weighing up the possibility of a continued uptrend.



Tellingly, adoption metrics for the underlying networks have emerged as a crucial indicator for predicting the price action of layer-1 (L1) projects. <a href="https://www.bloomberg.com/professional/blog/ethereums-moat-reinforced-in-bear-market-solana-has-value/">On-chain data reveals that an L1 asset&#8217;s value tends to increase or decline based on user activity and demand for blockspace.</a> Therefore, tracking the relationship between active addresses and the price of an L1 asset can enable investors to spot potential opportunities. These insights also deliver a gauge for measuring the competitive moat of a layer-1 network.



The <a href="https://www.bloomberg.com/professional/solution/bloomberg-terminal/">Bloomberg Terminal</a> provides actionable trading data from on-chain activity across leading L1 networks. Analyzing these data sets gives investors the competitive edge to make calculated investments into L1 ecosystems.



<h2>The year so far for L1s</h2>



Market valuations for L1 projects has rebounded from the harsh conditions created by the fallout of several centralized crypto companies, including FTX, Celsius, BlockFi, Genesis Capital, and several others. As of late December 2022, most L1 assets traded more than 90% below their all-time highs.



Nonetheless, the collapse of centralized entities emphasized the need for blockchain-based alternatives powered largely by L1 networks. This has, in turn, led to an increase in user demand for L1 assets to own a stake in these networks and access decentralized applications.&nbsp;



Unsurprisingly, the market value for a subset of L1 assets (ETH, BNB, SOL, AVAX) tracked by Bloomberg Intelligence has risen by an average of 79% year-to-date. Solana&#8217;s SOL token is the biggest gainer, with nearly 150% gains since the turn of the year. The most widely used networks, Ethereum and BNB Chain, have also recorded 38% and 28% gains, respectively.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="534" height="396" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png" alt="" class="wp-image-50707" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=534 534w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=347 347w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=352 352w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=295 295w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-17.png?w=80 80w" sizes="(max-width: 534px) 100vw, 534px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


Regardless of the recovery of L1s, the year ahead is likely to be volatile. Unlike the recent increase linked to a broader market recovery from oversold levels,  Bloomberg Intelligence Senior Market Structure Analyst Jamie Douglas Coutts <a href="https://www.bloomberg.com/professional/blog/ethereums-moat-reinforced-in-bear-market-solana-has-value/">predicts that</a> &#8220;price momentum [for L1s] will need to be matched with strengthening fundamentals [while] pointers such as user adoption and protocol monetary policy” will be crucial, especially as the L1 wars resume in the coming months.



<h2>Competitive moats for L1 networks</h2>



The 2022 bear market provided a stern test for L1 ecosystems, with user activity recording a steep decline throughout the year. At the same time, the downturn provided a yardstick for measuring the competitive moat of each L1 network.&nbsp;



For instance, Ethereum and BNB Chain showed greater resilience to the lower blockspace demand than competing L1s Solana and Avalanche. The number of active addresses on Solana and Avalanche dropped by 69.9% and 26.46%, respectively, while Ethereum and BNB saw less than a 2% decline under the same user metric.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="532" height="539" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png" alt="" class="wp-image-50704" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=532 532w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=296 296w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=254 254w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=258 258w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=216 216w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-14.png?w=80 80w" sizes="(max-width: 532px) 100vw, 532px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


The number of active addresses on an L1 is a crucial metric as it represents the number of actual users on each chain. Hence, the sustained demand for Ethereum and BNB Chain blockspace underlines their position as the leading destination for Web3 users.&nbsp;



In contrast, the decline in active addresses on Avalanche and Solana amid the bear market suggests user interest in these L1s is connected to short-term plays within the respective ecosystems. Moreover, the active addresses metric delivers other actionable insights for investors to optimize their L1 portfolio.



<h2>The power of active addresses </h2>



Bloomberg&#8217;s analysis demonstrates that the number of active addresses heavily impacts the price action of L1 assets. The study utilized the widely-trusted &#8220;R-squared&#8221; methodology to uncover that the <a href="https://www.bloomberg.com/professional/blog/ethereums-moat-reinforced-in-bear-market-solana-has-value/">correlation between price action and active addresses on the top three L1s</a> (Ethereum, BNB Chain, and Avalanche) ranged from moderate to strong.



Understandably, Solana&#8217;s price action correlated less to the number of active addresses distorted by heavy venture capital interest in the network and the collapse of its biggest backer, Alameda Research. The price of SOL recorded a linear regression of 0.01 over 33 monthly samples.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="537" height="241" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png" alt="" class="wp-image-50705" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=537 537w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-15.png?w=80 80w" sizes="(max-width: 537px) 100vw, 537px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


Investors derive from the above metrics that price action for ETH and AVAX relies more heavily on an uptick in active addresses, while BNB is subject to other market forces. Accessing such invaluable on-chain data in real-time through the Bloomberg Terminal equips market participants to allocate trading capital efficiently and amplify returns on investments. Monitoring the trend on active addresses is especially crucial to investors as L1 activity begins picking up again in a post-bear market environment.



<h2>L1 activity trends in 2023</h2>



The rebound in the market value of L1 assets does not directly reflect a resurgence in user activity on the underlying chains. Instead, it is more closely linked to a less-hostile macro environment where investor appetite gradually returns after a devastating year for financial markets.&nbsp;



L1 activity trends remain relatively low, with BNB Chain the only network seeing an increase in active addresses in 2023. The Ethereum L1 failed to add new active users but has seen an uptick in new addresses onboarding layer-2 solutions such as Optimism, Arbitrum, and Polygon. The Ethereum-native ecosystem has grown by over 20%, with addresses jumping from 330,000 to more than 420,000 in the past year. Such growth demonstrates Ethereum&#8217;s competitive moat and increasing significance as more L2 solutions come onto the scene.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="532" height="310" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png" alt="" class="wp-image-50708" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=532 532w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=448 448w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=376 376w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-18.png?w=80 80w" sizes="(max-width: 532px) 100vw, 532px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


As the above Bloomberg Intelligence analysis further shows, Solana and Avalanche are the biggest underperformers, with unique active addresses relatively flat since the turn of the year. Both L1s inarguably require an uptick in the number of users and transaction activity to stage a comeback to 2022 highs.



<h2>Using the active address ratio to spot potential mispricing opportunities</h2>



Data and analysis available on the Bloomberg Terminal also tap into the active address ratio to address one of the biggest challenges for digital asset investors – evaluating an L1 project. Efficiently comparing active addresses to an asset&#8217;s market cap allows investors to identify mispricing opportunities.



Ethereum leads the ranking for L1 assets by market cap to active addresses ratio, owing to its high level of decentralization and network properties. The switch to PoS would also help Ethereum scale its ecosystem faster through L2 solutions.


<div class="wp-block-image">
<figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="541" height="363" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png" alt="" class="wp-image-50706" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=541 541w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=383 383w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=326 326w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-16.png?w=80 80w" sizes="(max-width: 541px) 100vw, 541px" /><figcaption class="wp-element-caption">Source: Bloomberg</figcaption></figure></div>


However, Bloomberg&#8217;s findings reveal that Solana may be mispriced despite having a significantly higher number of active users than Avalanche. Avalanche&#8217;s market cap to active address ratio trades at a 500% premium vs. Solana. The EVM-based chain boasts only 12% of Solana&#8217;s active addresses. The metric also indicates that SOL may be undervalued and primed for an increase as bear market effects wear off.



<h3>Optimize L1 portfolios with data-driven insights from Bloomberg&nbsp;</h3>



Layer-1 chains play a crucial role within the digital asset industry and represent a sizable portion of many investment portfolios. Investors can optimize their exposure to the L1 ecosystem with data-driven insights from Bloomberg Intelligence, available exclusively for Bloomberg Terminal subscribers. The <a href="https://www.bloomberg.com/professional/solution/bloomberg-terminal/">Bloomberg Terminal</a> grants users access to actionable on-chain data across different L1 networks, including Ethereum, BNB Chain, Solana, and Avalanche. For instance, analyzing high-value data on active addresses equips users to gauge an L1&#8217;s competitive moat and spot potential mispricing opportunities in real time. Investors can thus optimize short-term and long-term portfolios to maximize returns on the L1 bets.



This content is sponsored by <a href="https://www.bloomberg.com/professional/solution/bloomberg-terminal/">Bloomberg</a>.



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What the Strong Recovery of L1s Means — and How Active Addresses Will Be Key To Know Where They’re Going

Shalini Nagarajan

The US Office of the Comptroller of the Currency (OCC) has established a new fintech office to adapt to technological evolutions in banking, including crypto assets.



The Treasury said the office will add to its knowledge of digital assets, fintech partnerships and other emerging technology models that have an impact on OCC-supervised banks. It will also contribute to oversight of partnerships between traditional institutions and fintech firms.



Prashant Bhardwaj, who has worked in several roles across the financial sector for 30 years, has been appointed the new fintech office&#8217;s deputy comptroller and chief financial technology officer. His tenure begins April 10.



“To ensure that the federal banking system is safe, sound, and fair today and well into the future, we need to have a deep understanding of financial technology and the financial technology landscape,” Michael Hsu, acting comptroller of the currency, said in a <a href="https://www.occ.treas.gov/news-issuances/news-releases/2023/nr-occ-2023-31.html" target="_blank" rel="noreferrer noopener">statement</a>.&nbsp;



The OCC is a department under the Treasury in charge of executing laws relevant to national banks. Some of its powers include supervisory actions against banks, removal of bank directors and rejecting applications for new bank branches.



Hsu has previously urged the crypto industry to introduce stablecoin standards in the same vein as the World Wide Web Consortium and Internet Engineering Task Force’s approaches to guiding internet development.



In December, the OCC reiterated its stance on taking a <a href="https://blockworks.co/news/us-treasury-occ-crypto-problem" target="_blank" rel="noreferrer noopener">cautious approach</a> to crypto, pointing to various events that roiled digital asset markets in 2022.&nbsp;



One year earlier, Hsu had issued a reminder to federal savings associations and national banks to not participate in “certain cryptocurrency, distributed ledger, and stablecoin activities” without a non-objection notice from their regulatory supervisors.



“The events of this year in the crypto industry have revealed a high degree of interconnectedness between certain crypto participants through a variety of opaque lending and investing arrangements,” the agency said in a semi-annual Risk Perspective report.



Just before his recent retirement, Senator Pat Toomey pushed legislation that would see the OCC <a href="https://blockworks.co/news/lame-duck-senator-leaves-stablecoin-bill-legacy" target="_blank" rel="noreferrer noopener">gain direct oversight</a> of stablecoin issuers by way of a specialized licensing charter.



The agency was among three powerful US financial regulators to express skepticism over financial institutions holding crypto assets in January. Along with the Federal Reserve and the Federal Deposit Insurance Corporation, the OCC <a href="https://www.fdic.gov/news/press-releases/2023/pr23002a.pdf">warned</a> that risks associated with crypto should not spill over into the banking system.&nbsp;



“Based on the agencies’ current understanding and experience to date, the agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices,” the agency said.



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Fresh OCC ‘Fintech Office’ Tasked With Keeping Up With Crypto

SEC Chair Gary Gensler voiced his support of President Joe Biden’s request to fund his agency to the tune of $2.4 billion, claiming the funding would go a long way to taming the “wild west” of the crypto markets.



“I am pleased to support the President’s [financial year] 2024 request of $2.436 billion for the SEC, to put us on a better track for the future,” Gensler said during a House Financial Services subcommittee hearing.



Rapid technological innovation in the financial markets, particularly crypto, has led to misconduct in emerging areas, he added in his <a href="https://docs.house.gov/meetings/AP/AP23/20230329/115576/HHRG-118-AP23-TTF-GenslerG-20230329.pdf" target="_blank" rel="noreferrer noopener">published remarks</a>.



<a href="https://blockworks.co/news/gary-gensler-bait-switch-coinbase">Critics argue</a> the agency, under Gensler, has unfairly targeted the industry, which has led to a series of high-profile enforcement actions through litigation — most recently with crypto exchange Coinbase’s receipt of a <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation">Wells notice</a> earlier this month.&nbsp;



The regulator is alleging Coinbase violated US securities through its spot market, staking service, Coinbase Prime and Coinbase Wallet. Weeks prior, rival exchange <a href="https://blockworks.co/news/kraken-settles-sec-crypto-staking-program">Kraken agreed</a> to settle with the SEC for $30 million over similar allegations, without admitting wrongdoing.



The funding, if approved by Congress, would allow the agency to double its headcount, allowing the division handling crypto affairs “to investigate misconduct on a larger scale.”



“Addressing this requires new tools, expertise and resources,” Gensler said. It would also speed up the pace of enforcement investigation through “resolutions.”



The SEC did not immediately respond to a request for comment.



“These additional resources would strengthen the division’s ability to protect American families by addressing risks in the crypto markets, cyber and information security, and the resiliency of critical market infrastructure,” he said.



Crypto is “rife with noncompliance,” Gensler added, seemingly ignoring Coinbase’s accusation it has attempted to engage with the regulator on multiple occasions for a clear path to registration.&nbsp;



“Investors have put hard-earned assets at risk in a highly speculative asset class,” he said.



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Gensler Cheers $2.4B Funding Proposal for SEC in Biden Budget

The world’s largest asset manager, BlackRock, said Thursday it believes the US Federal Reserve would continue its campaign of future rate hikes, despite market expectations of a freeze.



It could mean a volatile road lies ahead for digital assets in the short-term, based on prior performances throughout 2021 and 2022 and present-day announcements from the central bank, experts say.



Bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>), which has so far managed to climb a wall of worry in the wake of the Fed’s <a href="https://blockworks.co/tag/interest-rates">aggressive rate hikes</a>, benefited from uncertainty in the banking sector as investors sought to hedge via a <a href="https://blockworks.co/news/institutions-bullish-on-eth-price">flight to quality</a>.&nbsp;



The biggest headwinds now facing the US and global economy are not immediate, Dmitry Lapidus, of crypto-native investment fund Dragonfly, told Blockworks.



The Fed “did a great job bailing the banks out” and the effect on GDP is likely to be exaggerated for the remainder of the year, he said.



“I think they cluster somewhere around Q3/Q4 when excess savings are drawn down and housing data is likely to accelerate to the downside.”



Despite the Fed’s recent dovish stance of easing rate hikes, as evidenced by its 25 basis point rise instead of the previously anticipated 50, market uncertainty still lingers.



Lapidus said for crypto, “it’s tough to decouple” from the macroeconomic environment, with the “pain trade” continuing to be up in all risk assets as long as liquidity was supported.



In the near term, he predicts the trend of higher prices for digital assets to continue.



<h2>Future rate hikes?</h2>



The Federal Reserve will next convene to determine short-term interest rates on May 3, with analysts predicting a split chance between a 25 bps increase or the decision to maintain current rates, data from CME Group’s <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">FedWatch</a> tool shows.



BlackRock <a href="https://www.bloomberg.com/news/articles/2023-03-28/markets-are-wrong-on-us-rate-cut-bets-blackrock-says" target="_blank" rel="noreferrer noopener">believes</a> the central bank will avoid rate cuts this year and opt to continue curbing inflation, albeit at a less aggressive pace than the year prior. Lapidus agrees, pointing to&nbsp; “stubborn” and “sticky” core inflation, as well as the contained banking crisis. In that world, rates would continue to rise.



Previous hikes show the impact on digital assets has had mixed results, particularly at a time when the industry was dealing with several major bankruptcies and declining valuations.



The two largest drops in bitcoin’s price on rate hike announcements occurred on May 5, 2022 (-7.9%) and June 16 of the same year (-9.6%), taking the federal funds rate from 1.5% to 1.75%. Both came before the larger interest rate hikes of 75 bps in the latter half of 2022.



If the Fed reaccelerates its pace with indications of significantly more rate hikes to come, then the crypto rally will falter, Markus Thielen, Matrixport&#8217;s head of research, told Blockworks.



“The debate about a higher terminal rate would also have negative implications for tech companies and start-ups,” he said.



<h2>Change of pace</h2>



Still, the environment in which digital assets now operate has significantly changed from two years ago, when rates had come off historic lows which sustained a decade of cheap borrowing costs.



The price of bitcoin actually rose about 8% on a rate hike of 75 bps <a href="https://blockworks.co/news/fed-raises-rates-75-basis-points-again">on July 27, 2022</a>. Other instances, including the hikes on <a href="https://blockworks.co/news/fed-ends-0-75-streak-opts-for-lower-rate-increase-in-december">Dec. 14</a>, <a href="https://blockworks.co/news/federal-reserve-raises-interest-rates-25-bps">Feb. 1</a>, 2023, and, most recently, <a href="https://blockworks.co/news/federal-reserve-interest-rate-25-bps-march">on March 22</a>, resulted in moderate increases in bitcoin’s price.



Research-focused digital assets brokerage firm K33 <a href="https://k33.com/research/analysis/analysis/correlations-are-declining-and-it-makes-sense" target="_blank" rel="noreferrer noopener">said</a> in a Thursday post that growth had been the main priority amid the zero-interest rate regime, which had kicked into high gear from the outset of the COVID-19 pandemic.



“In crypto, the growth focus was perverse. This is the source of the yearlong correlated hangover that was 2022,” the firm said.



The abundance of capital available to startups via private fundraising led to a prioritization of growth over everything else, with lower interest rates further fueling that trend, K33 said.



While the impact on digital asset performance over the short term appeared sensitive to future hikes, the longer-term implications of “high-interest rates are unknown,” it said.



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BlackRock Predicts More Rate Hikes, Possible Short-Term Volatility for Crypto

A new MIT masters thesis from a US Space Force major contends bitcoin is not just a form of internet money — but a weapon to be utilized by the Pentagon in modern warfare.



In an exhaustive 400-page dissertation, Major Jason Lowery claims bitcoin’s proof-of-work consensus mechanism presents a massive shift in the way world powers could wage war.



Instead of boots on the ground or nukes in the air, Lowery suggests nations battle by competing for Bitcoin block rewards, <a href="https://www.politico.com/newsletters/digital-future-daily/2023/03/30/space-force-major-to-pentagon-mine-bitcoin-00089745" target="_blank" rel="noreferrer noopener">Politico reported</a> Thursday.



“Space Force” is the newest brand of the US Armed Forces, created in December 2019. It&#8217;s responsible for organizing, training and equipping military persons across the stars in a bid to protect US and allied interests.



Lowery is an active-duty US Space Force astronautical engineer and US National Defense Fellow at MIT whose job it is to advise senior military personnel on the implications of bitcoin, according to a bio of his latest book.&nbsp;Politico says it confirmed his rank with an Air Force spokesperson.



Lowery&#8217;s thesis was released as a <a href="https://www.amazon.com/Softwar-Projection-National-Strategic-Significance/dp/B0BW358F37" target="_blank" rel="noreferrer noopener">book</a> in February under the title &#8220;Softwar: A Novel Theory on Power Projection and the National Strategic Significance of Bitcoin.&#8221; It&#8217;s said to describe a scenario in which governments duke it out with hashrate; fighting something akin to a Cold War, where the spoils are bitcoin and bragging rights.



The blurb reads:



&#8220;Using scientific concepts from biology, evolution, anthropology, political science, and computer theory, Lowery summarizes the dynamics of power projection in human society and provides an argument for why emerging proof-of-work technologies (namely Bitcoin) will have a dramatic impact on how humans organize, cooperate, and compete on a global scale by empowering populations to project physical power in, from, and through cyberspace.&#8221;



Bitcoin’s consensus could also be harnessed to deter denial-of-service attacks, Lowery reportedly reasons, which would make it costly and therefore prohibitive for bad actors to spam software systems based on its principles.



Should the asset be viewed through that lens, it would serve the US’s interest to protect the network and foster an industry for domestic crypto mining, or so the thinking goes.&nbsp;



<h2>Bitcoin is a &#8216;national strategic imperative&#8217;</h2>



In a stark warning to US policymakers, the major contends the country should support and adopt bitcoin immediately in a bid to avoid losing its status as a global superpower.



That’s just the kind of message of which industry proponents have hoped for years.&nbsp;Although, it&#8217;s probably unlikely.



&#8220;Major Lowery concludes that Bitcoin represents a national strategic imperative that the US should support and adopt as quickly as possible, else it risks losing its lead as a global superpower in the 21st century,&#8221; states the book&#8217;s description. 



Instead, the current campaign employed by US regulators and the <a href="https://blockworks.co/news/bidens-view-on-crypto" target="_blank" rel="noreferrer noopener">White House</a> has been to offer up no support in that regard, opting to <a href="https://blockworks.co/news/crypto-regulation-policy-law" target="_blank" rel="noreferrer noopener">regulate digital assets through litigation</a> with little discourse, critics argue.&nbsp;Various arms of the US government have also routinely <a href="https://jlopp.github.io/us-marshals-bitcoin-auctions/" target="_blank" rel="noreferrer noopener">sold</a> bitcoin seized as a result of criminal cases.



“Our first amendment rights to free speech will not protect you from government regulators who are actively maneuvering to ban bitcoin under the argument that it represents a threat to national security,” <a href="https://twitter.com/JasonPLowery/status/1640808749328748574?s=20" target="_blank" rel="noreferrer noopener">Lowery tweeted</a> Tuesday.



“Your best bet is to argue that it would be a national strategic security hazard to ban bitcoin. It would be against the second amendment (not just the first). It&#8217;s an undefeatable argument, you just have to have the courage to use it,” he said.



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Pentagon, Mine Bitcoin To Stay Superpower: Space Force Major

The CFTC’s crackdown on Binance found US institutions have allegedly been interacting with the exchange, and market research shows liquidity depth may have been the main attraction. 



<a href="https://blockworks.co/tag/binance">Binance</a>, the world’s largest crypto exchange, long maintained the top spot in terms of trading volume and market share, but institutions may have been drawn to it for another reason: liquidity options.&nbsp;



“Liquidity is paramount in crypto, particularly for institutions that are building or selling large positions or trading frequently,” research analysts at Kaiko wrote in a note. “On this front, Binance again scores well, with spreads 36 times tighter than Binance.US and 8 times tighter than Coinbase as of this writing.”



Binance trading volume has traditionally suggested the majority of traders were in the US, considering US trading hours have been the most bustling times for trades executed on the platform. Year-to-date, 43.4% of Binance’s bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) trading volume has occurred during hours, just below Coinbase’s 47.5%.



“Unsurprisingly, Binance has the tightest spread for both BTC-USDT and ETH-USDT,” researchers said.&nbsp;



Radix Trading, a Chicago-based firm, identified itself as one of the three entities named in the CFTC’s complaint; “trading firm A,” the Wall Street Journal <a href="https://www.wsj.com/livecoverage/stock-market-news-today-03-28-2023/card/chicago-s-radix-says-it-is-trading-firm-a-in-binance-lawsuit-vO56wCCHBxs9YtKQfVGV?utm_campaign=Research%20newsletter&amp;utm_source=hs_email&amp;utm_medium=email&amp;utm_content=70276830&amp;_hsenc=p2ANqtz-9ZBfTThBpUq9daD3MJcL2fbITJQvbZy8PCdK4RUBHT4IC2utMjhjjyHswdP3w8tcFcwsFxGHs57EdZYY_YaEb-FzO0MRtUpGEPd1XWm9sEC87CgLQ" target="_blank" rel="noreferrer noopener">reported</a> Wednesday. The firm had to use offshore accounts to avoid restrictions, but the trouble could have been worth it, industry members say. 



The lawsuit could impact <a href="https://blockworks.co/news/can-we-solve-the-crypto-exchange-liquidity-problem">liquidity options for the rest of the market</a>.



“This could negatively impact market liquidity, which is already unusually thin,” said Noelle Acheson, author of Crypto is Macro Now and former head of market insights at Genesis. “The suit mentions a few large US trading desks that have been actively avoiding US regulations when dealing with Binance – these could end up temporarily laying low for a while.”



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Why Binance May Have Been Worth Risk for US Institutions 

Badger DAO plans to bring a synthetic bitcoin onto Ethereum through liquid staking derivatives.



The aim of the new cryptoasset, Dubbed eBTC, is to become one of the most decentralized synthetic bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) assets in the market backed solely by liquid-staked ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>) and reliant on immutable smart contracts.



There’s historically been a difficult environment to drive consistent utility and yield sources for bitcoin assets on Ethereum, Badger DAO’s head of marketing, who goes by <a href="https://twitter.com/0xWill_">Will</a>, told Blockworks.&nbsp;



Assets such as wBTC are in the custody of centralized entities. By comparison, liquid staking derivatives (LSDs) on Ethereum have driven a consistent, sustainable source of yield, and Badger hopes to tap the asset to build a bitcoin primitive on Ethereum that does not require bridging or wrapping.



“Your native bitcoin can stay on Bitcoin and you can play around, speculate and hold a decentralized bitcoin on Ethereum,” <a href="https://twitter.com/0xWill_">Will</a> said.&nbsp;



<h2>Fewer censorship risks than wBTC</h2>



As it stands, wBTC is one of the most commonly used forms of BTC on Ethereum, but with points of centralization come potential censorship risks.



eBTC, on the other hand, “eliminates the custodial risk as anyone can mint it and at launch, the protocol will be significantly governance minimized with a clear path toward further decentralization and censorship resistance,” according to Will.&nbsp;



Will said with eBTC, smart contracts will be immutable, and the user’s collateral or debt positions will not be controlled by any governance. Even so, plans for a multisig are still in place, and multisig governance will operate through BadgerDAO that can adjust the yield share fee earned from staked ETH collateral.&nbsp;



Read more: <a href="https://blockworks.co/news/what-are-multisig-wallets">What Are Multisig Wallets?</a>



“This is in direct contrast to many existing CDP systems and on-chain money markets that constantly need to adjust their risk parameters such as minimum collateralization ratio or others that have upgrade rights to the underlying smart contracts,” Will said.



<h2>How is eBTC pegged to BTC, anyway?&nbsp;</h2>



The new primitive is designed as an over-collateralized debt position that uses liquid-staked ether to borrow eBTC, meaning: To borrow eBTC, a user must provide a higher value as denominated in staked ether.



The debt position will be primarily determined through Chainlink’s LSD/BTC oracle, with Tellor as the backup oracle.



“If a user&#8217;s debt position falls below the minimum overcollateralization ratio, they are subject to liquidation,” Will said. “This is based on the staked ETH/BTC ratio not BTC in USD terms. These liquidation mechanics are open to the market to participate.”



The amount of staked eth backing eBTC will be publicly available for all buyers to see and is also available on-chain, Will said.&nbsp;&nbsp;



One driving factor for Badger to leverage staked ETH/BTC for BTC: Both assets have “historically tracked well together in terms of price…thus [ranking] low on the volatility scale.”



Will does say though, that as price fluctuations happen, liquidations are very much possible.&nbsp;



“With that being said, users&#8217; positions are fully redeemable for the underlying collateral at all times as long as their positions are within the liquidation threshold,” he said.&nbsp;



Badger is currently <a href="https://forum.badger.finance/t/ebtc-builder-update-1/5975">working</a> with RiskDAO to examine its risk exposures to different market conditions. Stability mechanisms and parameters are being explored as part of an ongoing design process.&nbsp;



“This process is still underway and will inform some key architectural decisions such as liquidation parameters and collateral ratios,” Will said.



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A New Synthetic Bitcoin Is Coming to Ethereum

Ben Strack

Though one of the largest public bitcoin miners suffered a net loss of $687 million in 2022, Marathon Digital’s CEO says it remains on track to more than double its hash rate in the next few months and expand to a new region.



Marathon Digital’s deficit last year sprinted up from a $37 million loss in 2021. The company attributed the higher shortfall, in part, to “unfavorable variances” in a company announcement earlier this month.



A total of $651 million of the losses were unrelated to business operations, <a href="https://blockworks.co/tag/marathon-digital" target="_blank" rel="noreferrer noopener">Marathon</a> CEO Fred Thiel told Blockworks in an interview. They came in the form of impairment charges on the company’s mining rigs and digital assets — incurred when the value of an asset falls below the cost at which it was purchased.



Analysts at Compass Point Research and Trading maintained its buy rating of the stock in a research note last week, noting that it excludes non-cash impairments in its estimates.



Marathon’s stock price was $7.83 at 1:00 pm ET on Thursday — down about 1.5% on the day.



Compass Point lowered its price target from $11.50 to $10, as analysts expect the company’s share count to increase and bitcoin holdings to decrease. Marathon sold 650 of the 683 bitcoins it produced in February for operating expenses — a practice the company expects to continue, according to Thiel.&nbsp;



<h2>Hash rate growth, moving into UAE</h2>



The Florida-based miner is on track to fulfill its hash rate growth target from 9.5 exahashes (EH), as of Feb. 28, to 23 EH by mid-year, Thiel said.



It energized about 19,000 bitcoin miners last month, including 8,000 S19 XPs, Bitmain’s most recent ASIC hardware release in July 2022.



Not included in the expected 23 EH of computing power is Marathon’s upcoming entrance into the United Arab Emirates. The company revealed a joint venture with FS Innovation to build and operate two crypto mining sites in Abu Dhabi — amounting to 250 megawatts.



Thiel called the expansion the firm’s “first foray into vertical integration,” noting that the site would utilize self-designed immersion systems. Marathon began an immersion-cooled pilot project in November, which involves submerging mining servers in a dielectric fluid. It found that such technology could reduce the cost of servers when compared to using air-cooled setups.



“They have very warm summers, and then outside that period of time the temperature is quite mild,” Thiel said of the region. “[It’s] the perfect marriage to their energy situation where we can come in, take all that stranded energy and use it for bitcoin mining.”



Keep reading for more excerpts from Blockworks’ interview with Thiel.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Blockworks: What could stand in the way of Marathon meeting its goal of 23 EH of computing power by mid-year?



Thiel: Our build-out domestically right now is predominantly with Applied Digital.



We don’t see any hindrances there. Construction is well on its way, if not completed, at a number of the sites. Miners have already been delivered, so that’s not an issue.



So, if you typically think of the issues, of ‘do you have regulatory approval for the energy to energize, do you have construction completed, do you have your transformers installed and on site, and do you have your miners?’ In all cases, those items have all been taken care of.



Blockworks: How do you think about managing your bitcoin holdings going forward?



Thiel: If you go back to the 2021 period, the cost of capital was very low. It was easy to raise debt, it was easy to raise equity capital, and so it made sense to <a href="https://www.blockworksresearch.com/glossary#hodl-slang">hodl</a> all your bitcoin.



Then we go through 2022, [there’s] a big price decline, the markets get tighter. We still had a good ability to raise equity capital, so we focused, in the second half of 2022, on really strengthening our balance sheet, paying off all our current and revolving debt…and building a cash pile while continuing to build a bitcoin pile.



For this year and going forward…we’re going to sell bitcoin to cover operating expenses. We’ll look to hodl the rest, and so over time our bitcoin pile should continue to grow.



And, as we need capital for growth initiatives, we’ll leverage the capital markets for that.



Blockworks: What about potential acquisition opportunities?



Thiel: There are still a lot of miners who made investments in infrastructure — power and sites — and were not able to raise capital to either fully complete those sites or populate them with their own miners.



So there are a number of sites coming to market that miners like us could look at potentially investing in or acquiring. We’re very picky as we look at that.&nbsp;



The last thing we want to do is go and add a bunch of two-generation-old miners that may only have a year or two of good life on them and pay any sort of price for those.”



If an opportunity comes along where we can essentially acquire a site with a great power energy agreement, and it’s renewable energy predominately and there just happens to be miners there, we’ll definitely look at it. We probably won’t pay anything for the miners because what we’re really looking at is access to the energy and infrastructure.



We’re looking much more at a mix of sites going forward — self-designed and self-built, some third-party and then also joint venturing with folks. So I think you’ll see much more diversity in our site mix going forward.



This interview was edited for clarity and brevity.



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Marathon CEO: ‘Diversity in Site Mix’ Is Key to Future Growth

Crypto and institutions go together like lightning and thunder these days. Traditional finance shops are moving over, while the digital asset market births debutants all by itself.



This brings about two problems:



<ol>
<li>How do institutions — which are meant to represent the smart money — find market moving information before markets move?</li>



<li>How can they share that information with clients while remaining compliant with strict data security controls?</li>
</ol>



The Tie, a crypto-native data platform, is gunning to solve both concerns. In the same vein as Bloomberg Terminal, the firm’s crypto-only terminal platform serves as an all-in-one screener for news, market data, regulatory filings, analytics and research.&nbsp;



The startup, founded in 2017, says it has attracted more than 150 hedge funds, asset managers, venture capital firms, over-the-counter desks, market makers and the like (and even news organizations such as Blockworks).



It’s common for such firms to rely on encrypted messaging apps such as WhatsApp, Signal or Telegram — but regulators have recently handed out billions of dollars in <a href="https://www.computerworld.com/article/3675289/16-wall-street-firms-fined-18b-for-using-private-text-apps-lying-about-it.html">fines</a> for communicating about trades or other orders via platforms that don’t preserve business records, a key SEC requirement.



Those firms require chat histories to be stored and logged in a compliant manner, and until recently, they haven’t had a way to communicate with their counterparties from within the terminal.



“The roll-out of The Tie Terminal Messenger enables firms like ours to take advantage of [the digital asset investor network] and compliantly communicate with a range of leading market participants including banks, asset managers, funds, and liquidity providers,” Rob Hadick, general partner at Dragonfly Capital, said in a statement.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1600" height="815" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=1024&amp;h=1024" alt="" class="wp-image-50669" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=1600 1600w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2023/03/image-8.png?w=80 80w" sizes="(max-width: 1600px) 100vw, 1600px" /></figure>



There are other firms shooting for the same market. Aurox, for one, is a free terminal service intended to support fast-moving crypto traders, but its offerings are more skewed towards retail investors, rather than institutional types.&nbsp;



Other crypto-specific terminals, such as Orion Terminal, are more like market aggregators, allowing trades across multiple platforms all under one umbrella platform. And of course, there’s the Bloomberg Terminal, which does support a number of cryptocurrencies, but its selection is comparatively limited.&nbsp;



To help service institutional types that need more variety, The Tie’s terminal messenger is SOC 2 compliant, a benchmark built by the American Institute of CPAs, which translates to strict internal controls regarding how data — such as sensitive financial messages between institutions — is stored (to avoid leaks and whatnot).



All Tie Terminal users are verified via corporate email, reducing the chance of profile spoofing commonly seen across Telegram and WhatsApp. The firm says around half of its clients are using the messenger app but declined to give specific metrics for total usage so far.



“More than 80 of our 150+ clients have turned on Messenger and we are already seeing a significant number of messages per day,” CEO Josh Frank told Blockworks. “We anticipate both users and messenger volume to increase over time as new connections are formed and comfort with the feature improves.”



The Tie was <a href="https://www.accesswire.com/693801/The-TIE-Announces-9-Million-Strategic-Funding-Round-at-100-Million-Valuation">valued</a> at $100 million in March last year, when it raised a $9 million round led by Avalanche-focused venture firm Blizzard.



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Institutions Are Going Crypto — But How Do They Share Info?

Lior Lamesh

There’s nothing more some in the crypto industry would like than to seize upon the failures of Silicon Valley Bank, Signature Bank and Silvergate to sow distrust of traditional financial institutions. And while it doesn’t seem these banks did anything illegal at this juncture, the events may indicate a broader, perhaps industry-wide, failure. In fact, a <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4387676">recent report suggests</a> that at least 190 additional banks in the US are currently in danger of uninsured market runs (similar to that of SVB and Signature).&nbsp;



Despite the crisis, traditional banks are in many ways still far better equipped to provide crypto services than their crypto counterparts are. First, banks are skilled at taking custody of assets in a manner that is secure and compliant with regulation. Second, banks, in many cases, are still considered to be more trustworthy and transparent than their crypto-native counterparts. And third (most importantly), traditional banks can offer more diversified portfolio management, straddling both the crypto and fiat domains. All three points here give banks a definite leg-up in providing digital asset services to retail and institutional investors alike.



<h2>A deep, dark void of trust&nbsp;</h2>



The hacks, insolvencies and crashing crypto valuations that characterized 2022 have eroded consumer trust and confidence in crypto to its lowest levels in years. Believers and skeptics alike have had their faith severely tested. Increasingly, both critics and crypto natives are calling for more regulation and oversight. Industry thought leaders and exchange CEOs are all urging for self-custody. With a general lack of trust for all things crypto native — and in particular centralized exchanges (CEX) — a major void has formed within the industry.



Up until now, the market has virtually been monopolized by crypto-native companies. Financial institutions have been slow to keep pace with their crypto-native counterparts. In fact, a recent <a href="https://www.bnymellon.com/content/dam/bnymellon/documents/pdf/insights/migration-digital-assets-survey.pdf">survey</a> by Celent found that 65 percent of institutions go through crypto-native platforms for digital asset services, such as trading, lending and borrowing.



However, over the last couple of years, traditional financial institutions have gradually warmed up to digital assets, realizing that they have been missing out on viable revenue-generating opportunities. With 35 percent of the market share at the end of 2022, traditional finance has been steadily gaining traction for crypto custody, even prior to the <a href="https://www.theguardian.com/technology/2022/nov/18/how-did-crypto-firm-ftx-collapse">collapse of FTX</a>.



<h2>Regulation is around the corner</h2>



Given the events of the past year, regulators around the world have upped their game. <a href="https://www.europarl.europa.eu/thinktank/en/document/EPRS_BRI(2022)739221">MiCA (Markets in Crypto Asset) regulations</a> are expected to be passed in the EU during the first half of 2023. Earlier this year, the <a href="https://www.finextra.com/newsarticle/41711/uk-govenment-outlines-plans-to-regulate-cryptoasset-industry?utm_medium=newsflash&amp;utm_source=2023-2-1&amp;member=136033">UK announced</a> plans to strengthen regulation in the crypto industry, with stricter rules for financial intermediaries, custodians and crypto trading platforms. The US is also slowly making progress with a <a href="https://cointelegraph.com/news/congress-may-be-ungovernable-but-us-could-see-crypto-legislation-in-2023">framework</a> published in late 2022, albeit with less certainty.&nbsp;



<h2>Straddling the divide</h2>



Banks offering digital asset services could easily straddle the divide between traditional finance and the ‘future economy’ by offering customers access to diversified portfolio management. No longer would investors need to manage their crypto with A and their fiat with B.



Case in point, the aforementioned Celent survey suggests that 70 percent of institutional investors would increase their digital asset activity if services like custody and management were available from recognized, trusted institutions.&nbsp;



Moreover, 72 percent of institutional investors prefer to work through financial institutions providing hybrid portfolios consisting of both digital and fiat-backed assets. This indicates that the prevailing separation of asset classes doesn’t provide the optimal strategy for most investors.



<h2>Not as easy as it seems</h2>



Traditional financial institutions are well-positioned to fill the void of ‘trust,’ have more experience in asset custody, and know how to work with regulatory bodies — all of which positions them to take advantage of new revenue-generating opportunities in the custody and management of digital assets.



But there’s certainly a learning curve for financial institutions entering the digital asset custody space. While banks are well versed in safeguarding fiat assets, the custody of digital assets often requires a different mindset. The very nature of these digital assets exposes them to unique challenges which require additional safeguards.&nbsp;



Banks need to look to technology solutions that will enable them to effectively custody digital assets in a way that fits their operational needs while providing the highest degree of security. Luckily, digital asset custody solutions have come a long way and are empowering financial institutions to play a larger role than many would have imagined a year ago.&nbsp;



Regulators, investors and responsible industry players are all looking to minimize uncertainty and guarantee basic investor protections. The crises experienced across both markets make the need for a safer, more stable, financial ecosystem for all more clear than ever before. An ecosystem in which traditional financial institutions have an opportunity to take the lead.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Lior Lamesh is the co-founder and CEO of GK8, a company that offers both traditional and crypto-native institutions an end-to-end platform for managing blockchain-based assets, including custody, DeFi, staking, NFT, CBDC, and tokenization support. Having honed his cyber skills in Israel’s elite cyber team reporting directly to the Prime Minister&#8217;s Office, Lior led the company from its inception to one of the most impressive acquisitions of 2021. In 2022 Lior, alongside his co-founder Shachar Shamai, were selected by Forbes to be included in its prestigious ‘Forbes 30 under 30’ list.</div>


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Crypto Custody Has a Problem and Only Banks Have a Solution

Binance was <a href="https://blockworks.co/news/bitcoin-and-ether-are-commodities-says-cftc-in-binance-lawsuit">sued</a> by the Commodity Futures Trading Commission this week for allegedly evading trading and derivatives rules.&nbsp;



The crypto exchange operated without proper registration and illegally allowed Americans to trade crypto derivatives on its platform, according to the regulator. Binance called the CFTC’s complaint “unexpected and disappointing,” saying it had worked collaboratively with the agency for more than two years.



CEO Changpeng Zhao himself <a href="https://www.binance.com/en/blog/from-cz/czs-response-to-the-cftc-complaint-2408916493005890282">said</a> that the lawsuit contained an “incomplete recitation of facts” and that the company does not agree with the CFTC’s depiction of several concerns raised.



But what’s interesting to note is that the exchange was hit with an <a href="https://blockworks.co/news/binance-cftc-damning-quotes">exhaustive list of allegations</a>, despite having a solid team with expertise in financial crimes.



It appears to be a question of timing, as much of the conduct at issue took place before Binance dramatically ramped up its compliance efforts, according to Leo Mizuhara, CEO of DeFi asset management platform Hashnote.



“If you broke the law in 2019, then it doesn’t matter that you reformed your behavior in subsequent years,” Mizuhara told Blockworks.



<h2>‘A’ for effort Binance, but…</h2>



Binance’s efforts do count for something in the eyes of regulators, per Dave Weisberger, CEO of algorithm-trading platform CoinRoutes.



“The CFTC does care that Binance has hired a global team of compliance experts — but it’s more complicated than this,” Weisberger told Blockworks. “Both the CFTC and SEC consider actions against organizations for previous actions important for deterring future bad behavior.”



Binance can argue that it already has taken steps to beef up compliance, pointing to recent history.



In Sept. 2021, Binance <a href="https://www.binance.com/en/blog/leadership/nils-andersenr%C3%B6ed-joins-binance-from-europol-to-further-strengthen-investigations-and-audit-team-421499824684902767">hired</a> Nils Anderson-Röed, a former dark web specialist at Interpol, to lead investigations into offenders trying to commit crimes on the exchange.&nbsp;



Around the same time, Tigran Gambaryan, a former special agent with the Internal Revenue Service, was <a href="https://www.binance.com/en/blog/leadership/former-irsci-special-agent-tigran-gambaryan-joins-binance-as-vp-of-global-intelligence-and-investigations-421499824684902817">appointed</a> Vice President of Global Intelligence and Investigations. His career history includes investigations in bank secrecy act violations, terrorism financing and one of crypto’s biggest heists ever — the Mt. Gox hack.



Less than three months ago, Anderson-Röed was promoted to the position of deputy head of financial crime compliance. And only last month, Binance <a href="https://www.binance.com/en-IN/feed/post/220706">hired</a> Noah Perlman, who has served as a global head of financial crimes at Morgan Stanley and as division counsel at US Drug Enforcement Administration New York, as chief compliance officer.



Back in 2021, Zhao had <a href="https://www.binance.com/en/blog/from-cz/a-letter-from-our-ceo-reflecting-on-progress-and-the-road-ahead-421499824684902301">openly</a> said that Binance would double the size of its global compliance team by the end of that year, as the industry was facing “a lot of uncertainty.”&nbsp;



Gambaryan rebutted comparisons to FTX by <a href="https://www.efinancialcareers.co.uk/news/2023/03/binance-financial-crime">some observers</a>, saying Binance’s compliance team is larger than the total number of employees at most exchanges, while FTX’s had virtually none.



“We are proud to have in our ranks some of the most celebrated cyber investigators representing virtually every single major international law enforcement agency across the globe,” a Binance spokesperson told Blockworks.&nbsp;



“Just as they did during their time in the public sector, the investigators in our financial crimes compliance team are working hard on the front lines to protect users from illicit actors seeking to access the crypto markets,” the spokesperson said.



Weisberger thinks that whatever good will is engendered by Binance’s efforts only goes so far in light of other evidence.



“What struck me about this case as being important — and why I think Binance will likely have to settle with the CFTC — are the emails that allegedly prove that Binance worked with firms based and regulated in the United States to help them evade the rules,” Weisberger said.



Regardless of its investments in financial crime experts, Binance other behavior is still a big deal for the agency.



“The CFTC only cares about whether or not a crime has been committed, and changes to behavior taken after the alleged crime likely won’t be enough,” Mizuhara said.



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Binance Compliance Hires Didn’t Allay CFTC Investigators’ Concerns

John Lee Quigley

The Investor’s Guide to Bitcoin and Crypto Loans

Bitcoin and ether may be cryptocurrencies built atop public blockchains, but that’s really where their similarities end.&nbsp;



Yet they trade in almost exactly the same way — their prices move increasingly in tandem to near complete correlation. And they’ve been tightening ever since ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>) started trading almost eight years ago.&nbsp;



Across 2016 and 2017, bitcoin’s 100-day correlation with ether averaged at 35% (where 100% indicates complete correlation, -100% being complete inverse correlation). That number jumped to 66% across 2018 and 77% in 2019, before reaching more than 87% last year.



So far this year, bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) and ether’s correlation coefficient has averaged out to 98%. So, whatever bitcoin does — ether does too, with near perfect precision.



But why is their correlation increasing, and not decreasing? Their value propositions are quite different.&nbsp;



Read more: <a href="https://blockworks.co/news/the-investors-guide-to-crypto-correlation">The Investor’s Guide to Crypto Correlation</a>



Bitcoin is a pure-play decentralized cash system that doubles as a store of value. Bitcoin’s famous 21-million supply limit promotes scarcity in the vein of Austrian economics — that commodities should back currencies rather than the state.&nbsp;



Ethereum, on the other hand, supports an array of use-cases outside of the strict money doctrine: digital collectibles, prediction markets, metaverse communities and blockchain gaming.



ETH has no supply limit, with issuance and <a href="https://blockworks.co/news/ethereum-deflationary-2-months">burn rates more elastic</a>, tied to network usage.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/13127226/embed#?secret=RmfLVKbIpr" data-secret="RmfLVKbIpr" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">All lines are leading to complete correlation.</figcaption></figure>



Dessislava Aubert, a Kaiko research analyst, told Blockworks that macro investors tend to group bitcoin and ether together as risk assets (or crypto more generally), leading them to treat the two in a similar manner.



“This could explain why they are highly correlated, especially during periods of market turmoil when investors tend to be less discerning,” Aubert said. “However, as these assets mature, and their fundamental differences become clearer this is likely to change.”



<h2>Mainstream investors treat bitcoin and ether the same way</h2>



A rise in mainstream investment could also be responsible for the correlation. Sam Doctor, chief strategy officer at crypto-focused financial services firm BitOoda, reasoned that the bitcoin and ether camps were initially different, leading to distinct investor groups pumping money into their preferred cryptocurrencies (in other words: BTC and ETH “maximalists”).



More mainstream investors — whether <a href="https://blockworks.co/news/study-retail-still-bullish-crypto-post-ftx">retail</a> or <a href="https://blockworks.co/news/74-of-institutions-plan-to-buy-crypto-fidelity-survey">institutional</a> — have joined the market in recent years. “These tend to view crypto more as one trade, want exposure to the asset class and are diversifying into the top two, three or four tokens,” Doctor said.



There are still investors committed to either bitcoin and ether, he added, but as more “protocol-agnostic” investors enter the space, the more correlated these assets should be.



That is, at least until the space matures to where large investors are making very informed decisions about which protocol to invest in,” Doctor said. “Today such investors are in the minority, in my view.”



Specific catalysts, such as Ethereum’s <a href="https://blockworks.co/news/effect-ethereum-shanghai-upgrade-price">Shanghai fork</a> (which will activate staking withdrawals) could reduce correlations, along with the general maturation of the digital asset class.&nbsp;



But for the most part, bitcoin and ether are still one trade, he explained, drawing similarities between high correlation in airline stocks which can break down when one particular carrier faces a challenge.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/13131853/embed#?secret=ZLd2hXyQHN" data-secret="ZLd2hXyQHN" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Ether began outstripping bitcoin in 2020, but their correlation has since rebounded.</figcaption></figure>



The evolution of bitcoin and ether’s correlation could map to three distinct phases, per Doctor:



<ol>
<li>Independent crypto projects with their dedicated market adherents (low correlation)</li>



<li>Institutional and retail investors with more passive strategies buying both tokens (high correlation)</li>



<li>More discriminating active strategies (lower correlation)</li>
</ol>



“At the moment, crypto investors at scale are still somewhat passive investors, rather than actively valuing and shifting between protocols based on an informed analysis of underlying fundamentals,” he said.



There’s another potential factor, beyond investor profiles: how crypto markets themselves have evolved.



<h2>Most crypto markets were once denominated in bitcoin</h2>



Nick Hotz, vice president of research at digital asset investment firm Arca, explained that in the ‘old days,’ there weren’t any trusted stablecoins (with <a href="https://blockworks.co/news/stablecoin-issuers-book-big-profits">Tether’s</a> <a href="https://blockworks.co/price/usdt" target="_blank" rel="noreferrer noopener">USDT</a> an exception in some cases).



This meant traders on the primary exchanges priced all assets against BTC. And in the early stages of ether’s life, it was considered just another altcoin that was “by and large traded against BTC,” Hotz said. This would have resulted in the assets being less correlated than today.



Hotz cited increased use of stablecoins USDC, USDT and DAI as quote assets as the biggest factor that drove up correlations for other cryptocurrencies relative to BTC across 2018 and 2019.



“A lot of big money now treats BTC and ETH simply as ‘risk,’ since they are the most liquid assets, and not as many trade their pair (ETH/BTC) anymore.”



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/13133804/embed#?secret=5Xz7dJUQkX" data-secret="5Xz7dJUQkX" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Correlation streaks are becoming increasingly common.</figcaption></figure>



The correlation of the two today is more representative of external risks, such as <a href="https://blockworks.co/news/federal-reserve-interest-rate-25-bps-march">monetary policy</a>, crypto adoption, institutional market structure and <a href="https://blockworks.co/news/sec-serves-coinbase-in-latest-alleged-crypto-securities-violation">regulatory risk</a>, Hotz added, rather than the fundamentals of the two cryptocurrencies.&nbsp;



He also cited trends among larger investors, which show them treating digital assets as just one sub-sector of technology. “Assets of the same sector should be highly correlated (see: equity sectors), but should Bitcoin be highly correlated to a token that provides utility in a video game? Probably not.”



Hotz added: “For them to trade independently, there needs to be recognition of BTC and ETH as separate assets with very different fundamentals. Either that or more institutional interest in differentiating the two by pair trading them, which I think is unlikely.”



Studying the correlation between the top two cryptocurrencies and the S&amp;P perhaps reveals the real reason for the former’s tightening correlation: Everything is correlated with US-listed equities these days. Bitcoin and ether are simply no different.&nbsp;



“Periods when you see a spike in correlation [between BTC, ETH and the S&amp;P] are often also periods when the market is risk-off, so correlations have risen across the board,” Doctor said.



Doctor highlighted major events like the 2020 Covid sell-off and the 2022 bear market, marked by increasing BTC and ETH correlation with the S&amp;P: Risk-off markets beget high correlation between stocks and crypto. And markets are mostly risk-off right now.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/13255131/embed#?secret=hWQxc9C9hR" data-secret="hWQxc9C9hR" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Risk-off markets bring it all together.</figcaption></figure>



Still, there are signs that crypto markets are starting to make industry-specific investment decisions, rather than pure macro plays.&nbsp;



Kaiko’s Aubert pointed to recently-shrinking correlation between bitcoin and equities markets. The tech-heavy Nasdaq’s 30-day correlation with BTC has declined from an average of 60% last year to between 20% and 30% this year.



&#8220;As more value enters Bitcoin and its usage as a store of value increases, it is likely that its correlation with tech equities declines,&#8221; Aubert said. “In contrast ETH’s correlation with the Nasdaq could strengthen as it is arguably more similar to tech equities (it&#8217;s a decentralized, composable smart-contract network).”



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Why Are Bitcoin and Ether More Correlated Than Ever?

Sam Martin

Bitcoin Update

Digital Asset Summit (DAS) is returning March 2024.



This year&#8217;s event will be held in our nation’s capital, where industry leaders, policymakers, and institutional experts will come together to discuss the latest developments and challenges in the ever-evolving world of cryptocurrency.



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Speakers

Erik Voorhees

Mary-Catherine (MC) Lader is the Chief Operating Officer of Uniswap Labs, a developer of foundational web3-based products and applications. In this role, she oversees the company’s growth efforts, strategic initiatives, and operations. Previously, she held various leadership roles at BlackRock, including as the Global Head of the firm’s digital sustainability business, Chief Operating Officer of the firm’s digital wealth business, and leader of the firm’s strategic fintech investments and blockchain activities. MC began her career as an investor in Goldman Sachs’ Special Situations Group. She received her J.D. and M.B.A. degrees at Harvard Law School and Harvard Business School, respectively, and her B.A. at Brown University.

Mary-Catherine Lader

Zaki Manian is a Co-Founder of Sommelier, the most powerful coprocessor yet for DeFi traders and Liquidity Providers. He’s also a Co-Founder of iqlusion, which provides infrastructure like a data center and a Cosmos validator for next-gen crypto technologies. Previously, Zaki helped build the Cosmos ecosystem, including launching the first public Cosmos testnet, and served as a director of Tendermint. Zaki has been a leading developer in the blockchain space since 2014, when he taught himself cryptography and began contributing to projects including Bitcoin, Ethereum, Zcash, and Tendermint. Having studied history of science at the University of Pennsylvania, Zaki’s skill sets in software engineering, programming, and computer science are largely self-taught.

Zaki Manian

Justin Drake

At Alluvial, Chief Growth Officer Mara Schmiedt focuses on advancing industry participation and adoption of Liquid Collective, seeking out world-class partnership opportunities, and overseeing Business Development, Sales, and other strategic functions. Mara recently joined Alluvial as Chief Growth Officer from Coinbase, where she served as the Head of Sales for Coinbase Cloud, the leading developer platform for blockchain-based infrastructure products and APIs. She expanded Cloud's staking business, supporting large-scale organizations, enterprises, and institutional investors. Prior to joining Coinbase, she managed Business Development at Bison Trails, a leading provider of blockchain-based infrastructure acquired by Coinbase in February 2021. Mara also served as Strategy Manager at ConsenSys, where she supported the strategic development of Codefi, the blockchain application suite for Web3 Commerce and Finance.



Mara is passionate about open-source technology and has published multiple research reports and papers on liquid staking, such as <a href="https://drive.google.com/file/d/13-s15SvCIUBukhSZiNkpd0sTff3izQ5G/view">The Internet Bond</a> and <a href="https://consensys.net/insights/eth-2-staking-ecosystem-report/">Ethereum 2.0 Staking Ecosystem Report</a>.&nbsp;



Additionally, she has led various industry initiatives, including leading the working group with the Ethereum Foundation that developed the Ethereum Launchpad and the first distributed validator technology (DVT) PoCs. Mara's deep experience in bringing technology and blockchain-based products and services to market — as well as her track record of building world-class business and sales organizations — bolsters Alluvial's support of Liquid Collective.

Mara Schmiedt

Stani Kulechov

Hasu

Christine is a Partner and Head of Digital Asset Strategy at Apollo Global Management, Inc. In this newly created position, Christine leads digital asset strategy across the firm, exploring more ways to apply blockchain technologies to Apollo’s business. She also plays a key role in Apollo’s strategy to invest in some of the most innovative digital asset companies and founders, with a specific focus on those transforming the financial services sector where Apollo can serve as a validator and enabler of new technologies. Previously, she was a Managing Director at J.P. Morgan and led its Blockchain/Crypto/Metaverse program through initiatives in digital assets, tokenized payments, internet of-things, decentralized identity, NFTs, and virtual worlds. She is a graduate of Brown University. Christine was named in Fortune’s The Ledger 40 Under 40 list of “the most impressive, young superstars transforming business at the leading edge of finance and technology.”

Christine Moy

Santiago Roel Santos (CryptoPunk #9159) is an investor focusing at the intersection of DeFi and the Web3 metaverse (NFTs/gaming). Most recently was a Partner at ParaFi Capital, one of the largest crypto funds specializing in DeFi. Prior to that, he was at Sageview Capital investing in Internet and software and, before that, at JP Morgan investment banking. Santiago began investing in crypto in 2012.

Santiago Roel Santos

Michael Anderson is the co-founder of Framework Ventures, one of earliest and largest VC firms to enter the “DeFi” or Decentralized Finance industry. With over $1B in AUM, the firm has since expanded into additional maturing verticals like blockchain gaming and social crypto. Prior to Framework, Michael and his co-founder Vance Spencer launched Hashletes, a digital collectible startup with official licensing from the NFL. Before entering crypto, Michael served as a product manager at both Snapchat and Dropbox, where he helped build out their monetization platforms.

Michael Anderson

Soona Amhaz is founder and GP of Volt Capital, a venture firm that focuses on pre-seed and seed companies in the digital assets space. Soona is also an advisor to On Deck, Forbes 30 under 30 in VC, and an alum from the University of Michigan School of Engineering.

Soona Amhaz

Colleen Sullivan is Co-Head of Ventures at Brevan Howard Digital. Prior to joining Brevan Howard Digital, Colleen co-founded and served as CEO of CMT Digital, where she was also a partner with the broader CMT Group and commenced activities in the crypto industry in 2013. Prior to starting CMT Digital, Colleen co-founded Sullivan Wolf Kailus, a boutique law firm that specializes in hedge fund, private equity, venture capital, digital assets, and other alternative investment products. Colleen also previously practiced law in the Investment Funds and Derivatives group at Sidley Austin LLP and, at age 25, co-founded a company called iOptions Group LLC, which developed hedging and monetization strategies for holders of employee stock options. Ms. Sullivan currently serves on the Advisory Board of the Chamber of Digital Commerce.

Colleen Sullivan

Tarun is an alumni of D. E. Shaw Research (DESRES), Vatic Labs, an HFT firm, and Cornell. He fell into the blockchain world in 2011, when he was working on ASICs at DESRES and observed Bitcoin ASIC mining rigs substantially delay DESRES’s ASIC production. He has spent the last seven years working on simulation-based R&amp;D at the intersection of high-performance computing and AI and is applying this knowledge to the blockchain ecosystem.

Tarun Chitra

Kevin Owocki is the founder of Gitcoin.co — Where builders &amp; funders come together to build the open web.  Gitcoin has delivered <a href="http://gitcoin.co/results">$50mm worth of value</a> to OSS devs in the last several years. He has a BS in Computer Science, 15 years of engineering leadership experience in Open Source Software and Web Startups. Kevin is a community organizer in the Boulder Colorado Tech Scene.

Kevin Owocki

Meltem Demirors is Chief Strategy Officer of CoinShares, a publicly listed investment firm that manages over five billion in digital assets on behalf of a global investor base, and is a trusted partner to investors and entrepreneurs navigating the digital asset ecosystem.



 An established veteran of digital asset investing, Meltem draws on her substantial experience and widespread influence to accelerate growth and acceptance of the asset class. Prior to joining CoinShares, Meltem helped build and grow Digital Currency Group, raising capital from the world’s largest corporations and managing a portfolio of 120 companies and 4 subsidiaries. Before she was bitten with the bitcoin bug, Meltem worked in the Oil &amp; Gas industry in trading, corporate treasury, and M&amp;A roles. 



Meltem has been recognized for her personal contributions to the industry and serves as an outspoken advocate. She is a founding member of the World Economic Forum Blockchain Council. Meltem teaches at her alma mater MIT as well as Oxford, and is passionate about privacy and civil rights.

Meltem Demirors

Vance is the co-founders of Framework Ventures, a thesis-driven venture capital firm whose team of technologists, researchers, and investors partner with founders and teams to build token-based networks and develop the requisite cryptoeconomics, governance, and community to scale.

Vance Spencer

Jim Bianco is President and Macro Strategist at Bianco Research, L.L.C. Since 1990 Jim’s commentaries have offered a unique perspective on the global economy and financial markets. Unencumbered by the biases of traditional Wall Street research, Jim has built a decades long reputation for objective, incisive commentary that challenges consensus thinking. In nearly 20 years at Bianco Research, Jim’s wide ranging commentaries have addressed monetary policy, the intersection of markets and politics, the role of government in the economy, fund flows and positioning in financial markets.



Jim appears regularly on CNBC, Bloomberg and Fox Business, and is often featured in the Wall Street Journal, Bloomberg News, Grants Interest Rate Observer, and MarketWatch. Prior to joining Arbor and Bianco Research, Jim was a Market Strategist in equity and fixed income research at UBS Securities and Equity Technical Analyst at First Boston and Shearson Lehman Brothers. He is a Chartered Market Technician (CMT) and a member of the Market Technicians Association (MTA). Jim has a Bachelor of Science degree in Finance from Marquette University (1984) and an MBA from Fordham University (1989).

Jim Bianco

Mr. Forman is the Founder and Managing Partner of ParaFi Capital. ParaFi is a leading investment firm focused on the blockchain and digital asset markets, and an early pioneer in decentralized finance (“DeFi”). ParaFi is one of the largest investors, users, and governance participants within the DeFi ecosystem, spanning the full network lifecycle from pre-launch to full decentralization. Mr. Forman serves as the Chief Investment Officer across the firm’s strategies, which include investing in public and private cryptoassets, systematic credit and market neutral DeFi strategies, and blockchain-focused venture capital and growth equity investing.



Prior to founding ParaFi in 2018, Mr. Forman spent 10 years at leading alternative investment managers, including KKR and TPG. While at KKR, Mr. Forman served as a Director in the Credit business, investing across a wide array of industry sectors and strategies, including distressed special situations, private credit, and opportunistic and liquid credit. Prior to KKR, Mr. Forman served as a Vice President with TPG’s former credit business, Sixth Street Partners, as one of the first investment professionals to join the platform, helping scale its private credit vehicle, TPG Specialty Lending, which listed publicly in 2014. Earlier in his career, Mr. Forman worked in private equity at Littlejohn &amp; Company and investment banking at Rothschild &amp; Co. Mr. Forman graduated with a B.A. in Philosophy, Politics and Economics, magna cum laude, from the University of Pennsylvania.

Ben Forman

Haseeb is a Managing Partner at Dragonfly. He was previously a partner at Metastable Capital, and has a background in software engineering at Airbnb and Earn.com (acquired by Coinbase).

Haseeb Qureshi

Vanessa Grellet is a Managing Partner at Aglaé Ventures. Vanessa is a Global Executive with over 20 years of expertise in the Financial Services and Tech industry. At Aglaé Ventures she manages the Web 3 focused fund. Prior to joining Aglae she has Head of Portfolio growth at CoinFund and Executive director at ConsenSys where she focused on driving adoption for Ethereum based products,  Strategic initiatives, Alliances and Channels.  She was involved in setting up the Enterprise Ethereum Alliance (EEA), the Accounting Blockchain Coalition (ABC) and the Blockchain for Social Impact Coalition (BSIC). Prior to ConsenSys she was a Strategy Executive at NYSE focused on investments and M&amp;A and a key member of PwC’s global wealth management team. Vanessa is a Founding Board member of AABC focused on Blockchain and Art, a member of the Advisory Council of ConsenSys, a Milken Institute Associate, a contributor to the  World Economic Forum Digital Future Council and part of <a href="https://cointelegraph.com/top-people-in-crypto-and-blockchain-2022/vanessa-grellet">Cointelegraph’s list of 100 most influential people for 2022</a>. Mrs. Grellet graduated Cum Laude from Law School (Paris II Assas) and Business School (HEC).

Vanessa Grellet

Mihailo Bjelic received his MSc in CS from the University of Belgrade. Prior to entering Web3/blockchain industry, he co-founded an AI/ML-powered platform for automotive industry and several other smaller startups and side projects. In 2017, he decided to join the Web3 movement full-time, primarily as a researcher interested in Ethereum scaling and multi-chain paradigms. In parallel with his work, he became one of the prominent Ethereum proponents and community members. In 2019, he started working on Polygon and conceptualized its architecture, vision and brand. In 2020, he joined hands with the Matic Network team and they have been working together on Polygon since then.

Mihailo Bjelic

Ben is a co-founder of Optimism, a leading Ethereum L2 ecosystem. He served as Chief Scientist before becoming a director at the Optimism Foundation. In his free time, he makes Ethereum-based parody songs under his stage name, Weird ETH Yankovic.

Ben Jones

Kristin is the CEO of the Blockchain Association, the Washington, D.C.-based trade association representing more than 100 of the industry’s leading companies. She also serves as a board member of the Filecoin Foundation for the Decentralized Web. Kristin serves as a liaison between policymakers and the cryptocurrency industry to assist in the creation of legislation and regulation that promotes the growth of the cryptocurrency ecosystem in the U.S. She is also a leading, public voice advocating for the cryptocurrency and blockchain industry through top-tier media interviews, op-eds and letters to the editor, and global speaking engagements. Kristin is a renowned voice for the industry, having been featured on Fortune’s 2020 40 under 40 list, CoinDesk’s 2021 50 people who defined the year in crypto, and CoinTelegraph’s 2022 top 100 Influencers in Crypto and Blockchain. Prior to leading the Blockchain Association, Kristin helped blockchain and technology companies achieve their public policy objectives in Washington. She served as a Senate and congressional aide on Capitol Hill for nearly ten years, much of which was spent focusing on technology policy.

Kristin Smith

Avichal is a successful entrepreneur with executive experience at Google and Facebook, which acquired his previous company. As an angel investor, Avichal has invested in 15 unicorns and 5 decacorns including Airtable, Boom Supersonic, Color Genomics, Cruise, Deel, Figma, Newfront Insurance, Notion, Nova Credit, Pulley, and others. He co-founded Electric Capital in 2018 and has grown it to one of the largest crypto venture firms globally. Electric is an investor in many of the leading web3 protocols and companies such as Bitwise, Bitnomial, dYdX, Frax, Kraken, Magic Eden, NEAR, and Solana.

Avichal Garg

Matt Hougan is one of the world’s leading experts on crypto, ETFs, and financial technology. He is Chief Investment Officer for Bitwise Asset Management, a pioneer in cryptoasset index funds with more than $1.2 billion in assets under management. He was previously CEO of ETF.com, where he helped build the world’s first ETF data and analytics system, the leading ETF media site, and the world’s largest ETF conference, Inside ETFs. Hougan is co-author of both “A Comprehensive Guide to Exchange-Traded Funds” and “Cryptoassets: The Guide to Bitcoin, Blockchain and Cryptocurrencies for Professional Investors” from the CFA Institute’s Research Foundation. He is a crypto columnist for Forbes, and a three-time member of the Barron’s ETF Roundtable.

Matt Hougan

Li Jin

Ethan is the co-founder of the Cosmos network and serves as the CEO of Informal Systems. Informal Systems is a member-driven worker’s cooperative building software that enables trustworthy relationships between protocols and people to flourish. Ethan also serves as the President of the Interchain Foundation which funds and coordinates development of public goods in the Cosmos ecosystem. Ethan sees local money systems as the basis for self-sufficient local economies to prosper. With a background in cell biology, neuroscience, mathematics, machine learning, and distributed systems, his goal is to build systems that encourage humans to work cooperatively through methods of self-organization. He is currently focused on blockchain technology as a means to bring greater political and economic sovereignty to local communities around the globe. Prior to Informal Systems, Ethan co-founded the Tendermint and Cosmos projects, and served as CTO of Tendermint Inc. Today, dozens of projects are adopting technology conceived in the original Cosmos whitepaper, including the Inter-Blockchain (IBC) Communication protocol – an industry-standard for permissionless communication between sovereign blockchains. Today, the Cosmos ecosystem continues to pioneer technological paradigms for building interoperable application-specific blockchains.

Ethan Buchman

Tyrone leads J.P. Morgan’s Blockchain team and is responsible for creating innovative Web3-focused products &amp; solutions for J.P. Morgan’s businesses and clients, and for engaging with the industry at large in order to provide a holistic blockchain strategy for the firm. Tyrone is also the Head of Onyx Digital Assets, a multi-asset tokenization platform that enables the exchange of value for various types of digital assets. Tyrone was previously a Senior Blockchain Product Manager in J.P. Morgan’s Blockchain Center of Excellence and was also the Head of Product for Quorum, an open-sourced Ethereum-based blockchain platform built for Enterprise use. Prior to moving into the blockchain industry in 2015, Tyrone was a software engineer within J.P. Morgan's Credit Markets business, and before that he spent several years in Product transformation, managing and delivering large strategic programs across various businesses within J.P. Morgan, across Front, Middle and Back Office risk and trading systems. Tyrone sits on the Board of Directors of The Enterprise Ethereum Alliance and The Hyperledger Foundation.

Tyrone Lobban

Rich is a Co-Founder and President of GSR and leads the group across strategic initiatives and growth. He began his career at Goldman Sachs where he spent 11 years between New York and London in commodities trading as a Managing Director and Global Head of Crude Oil and Derivatives Trading. Prior to joining GSR, he spent a few years on the buy-side, running energy trading teams at two New York-based hedge funds. Rich earned a bachelor’s degree in Mathematics from Columbia University.

Rich Rosenblum

Kain Warwick is an Australian cryptocurrency entrepreneur most-known as the founder of Synthetix protocol. Synthetix is a financial primitive that enables the creation of synthetic assets, offering unique derivatives and exposure to real-world assets on the blockchain.&nbsp;In 2020, Kain popularised the concept of yield farming that sparked the 2020 DeFi boom, earning the moniker: ‘the father of modern agriculture.

Kain Warwick

Brian Quintenz is the Head of Policy for a16z crypto, where he helps to translate between the crypto and policy communities.



Brian has long stood out as an innovative thinker in crypto and DeFi and was one of the earliest leaders in Washington to recognize the value of crypto. Brian initially joined a16z crypto as a senior advisor. In December 2022, he moved to the full-time role leading its policy team.



Prior to joining a16z, he was nominated by both Presidents Obama and Trump to serve as commissioner of the Commodity Futures Trading Commission (CFTC) and, in August 2017, was unanimously confirmed by the U.S. Senate. He also led the agency’s Technology Advisory Committee, which hosted the most comprehensive set of public crypto-related policy discussions and briefings of any federal financial regulator. During his service, the CFTC oversaw the listing of the first U.S. regulated Bitcoin and Ether futures contracts on derivatives exchanges, and the rapid expansion of DeFi. All the while, he was a champion for tailored, risk-calibrated regulation.



Prior to his appointment to the CFTC, Brian was the Founder and Managing Principal of Saeculum Capital Management, LLC where he developed and implemented Saeculum’s long term, momentum-based investment process for both traditional discretionary accounts as well as a managed-futures, commodity pool hedge fund.



Brian began his career on Capitol Hill, where he worked for 6.5 years and served as senior policy aid to a Member of Congress. He received his B.S. from Duke University and M.B.A. from Georgetown University.

Brian Quintenz

Robby Yung, Animoca Brands’s CEO of Investments, partner at Animoca Capital, a leader in digital entertainment, blockchain, and gamification with a portfolio of products and games including the REVV and SAND tokens, as well as investment and partnerships with companies like Axie Infinity,  OpenSea, Dapper Labs, and Alien Worlds and subsidiaries like The Sandbox, Gamee, Quidd, and Lympo. Robby has been in gaming since 2012 and blockchain gaming since 2018. He served as the first CEO of Animoca Brands after taking the group public in 2015. Prior to that, he cofounded magazine publisher, One Media Group, which he listed on the Hong Kong Stock Exchange. He also founded Chinese television and outdoor media concern, Redgate Media Group, which was acquired by  Inno-Tech Holdings . He began his career in technology, building wireless telecom networks in China and Indonesia with Metromedia.

Robby Yung

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<h2>Why Sponsor Permissionless 2023?</h2>
If you’re serious about crypto, you have to be at Permissionless. Permissionless brings together DeFi builders, DAO participants, protocol developers, crypto companies, funds and institutions, and more. It’s a true crypto-native’s paradise, where you’ll have the opportunity to showcase your offerings and form lasting connections with the community.
We’ll work with your team to define the perfect sponsorship opportunity that best fits your needs and budget. Want to do something completely revolutionary? Our team can help design a bespoke package that brings your vision to life.
Get in touch with us at <a href="mailto:sales@blockworks.co">sales@blockworks.co</a>
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