AtPay

Ben Strack

BlackRock continues to attract assets to its bitcoin ETF daily, even as its competitors see inflows into similar funds stall.&nbsp;&nbsp;&nbsp;



The asset management giant’s iShares Bitcoin Trust (IBIT) has been a flow-gathering standout since US spot bitcoin ETFs launched on Jan. 11.&nbsp;



It so far has tallied more than $15.3 billion of net inflows — ahead of the $8 billion or so notched by the next-best Fidelity Wise Origin Bitcoin Fund (FBTC).



Read more: <a href="https://blockworks.co/news/blackrock-q1-earnings-bitcoin-fund-inflows">BlackRock bitcoin fund accounts for 20% of the firm’s Q1 ETF net inflows</a>&nbsp;



Grayscale Investments’ Bitcoin Trust ETF (<a href="https://blockworks.co/tag/gbtc">GBTC</a>) has kept a slight assets under management edge over IBIT for now — at about $19.4 billion to $17.1 billion, respectively, as of Tuesday. However, GBTC started with about $28 billion in assets upon converting to an ETF in January and has endured nearly $16.5 billion of net outflows.&nbsp;



Youwei Yang, chief economist at BIT Mining said <a href="https://blockworks.co/tag/blackrock">BlackRock</a>’s strong brand, competitive fee structure and extensive distribution helps the firm’s bitcoin ETF appeal to <a href="https://twitter.com/EricBalchunas/status/1780249379091198042">institutional</a> investors.



Given the growing institutional interest in crypto, IBIT is well-positioned to surpass GBTC in AUM and “potentially maintain long-term leadership in the digital asset management space,” he added.



“This is the ‘winners take all’ scenario where it’s a positive spiral — the more inflows the more liquidity, and thus less fees and then more inflows,&#8221; Yang told Blockworks.&nbsp;



While IBIT quickly proved to be a leader in the space, its consistent net inflows — particularly of late — have once again highlighted its unique status compared to competitors.



Read more: <a href="https://blockworks.co/news/blackrock-bitcoin-etf-battle">Is it too soon to name BlackRock the bitcoin ETF segment winner?</a>



Nine US spot bitcoin ETFs saw zero inflows on both April 12 and April 15, according to Farside Investors <a href="https://farside.co.uk/?p=997">data</a>. IBIT’s net inflows amounted to $111 million and $73 million on those days, respectively.&nbsp;&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">Okay too many questions about <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> ETFs and zero flows &#8212; a few quick thoughts: 1. On any given day, the vast majority of ETFs will have a flow number of ZERO &#8212; this is very normal. There are ~3,500 ETFs in the US. Yesterday 2,903 of them had a flow of exactly zero&mdash; James Seyffart (@JSeyff) <a href="https://twitter.com/JSeyff/status/1780243642851995735?ref_src=twsrc%5Etfw">April 16, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



ETF.com analyst Sumit Roy in January called the BTC fund asset race between BlackRock and Fidelity <a href="https://blockworks.co/news/blackrock-fidelity-etf-flows-race">“a heavyweight fight that could go either way.”</a> Fast forward more than two months, and IBIT’s net inflows stand at nearly double those of FBTC.&nbsp;



The lack of inflows for Fidelity Investments’ bitcoin fund on April 12 snapped a 63-day streak for the offering.&nbsp;



Meanwhile, IBIT’s run of days with net inflows continues, standing at 66 days after welcoming $26 million of investor assets on Tuesday.&nbsp;



The streak is unprecedented for a new ETF and very rare for such a fund of any age.&nbsp;



The BlackRock bitcoin ETF passed the 65-day inflow streak set by iShares MSCI USA Min Vol Factor ETF (USMV), according to <a href="https://twitter.com/EricBalchunas/status/1779841828239323330">data</a> posted by Bloomberg Intelligence analyst Eric Balchunas. IBIT could tie a 67-day run set by the Vanguard FTSE Developed Markets ETF (VEA) if it sees net inflows Wednesday.



BlackRock likely “ticks the most investor due diligence boxes” of the spot <a href="https://blockworks.co/tag/bitcoin-etf">bitcoin ETFs</a> given its competitive fee, large asset base, liquidity and <a href="https://blockworks.co/news/wealth-manager-bitcoin-etfs-allocators">availability on platforms</a>, according to CoinShares research head James Butterfill.



IBIT is positioned to be the long-term asset leader in the bitcoin ETF space, he added.&nbsp;



“Being issued by the largest asset manager in the world gives it a lot of credibility in the eyes of investors,” Butterfill told Blockworks. “It has been very successful in other markets in the same way too.”



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BlackRock extends bitcoin ETF inflows lead as category demand slows

Michael McSweeney

The price of bitcoin dipped below $60,000 during Wednesday’s afternoon trade as the crypto market continued to showcase its trademark volatility.&nbsp;



BTC’s price has hit a local low of $59,658, TradingView data shows, though the price has recovered somewhat to trade around $60,600.&nbsp;



<figure class="wp-block-image size-large is-resized"><img loading="lazy" decoding="async" width="1630" height="1192" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/04/BTCUSD_2024-04-17_12-31-35.png?w=1024&amp;h=1024" alt="" class="wp-image-84376" style="width:702px;height:auto" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/04/BTCUSD_2024-04-17_12-31-35.png?w=1630 1630w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/BTCUSD_2024-04-17_12-31-35.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/BTCUSD_2024-04-17_12-31-35.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/BTCUSD_2024-04-17_12-31-35.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/BTCUSD_2024-04-17_12-31-35.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/BTCUSD_2024-04-17_12-31-35.png?w=351 351w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/BTCUSD_2024-04-17_12-31-35.png?w=357 357w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/BTCUSD_2024-04-17_12-31-35.png?w=299 299w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/BTCUSD_2024-04-17_12-31-35.png?w=80 80w" sizes="(max-width: 1630px) 100vw, 1630px" /></figure>



Bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) last traded below $60,000 on March 5, an event which occurred before the cryptocurrency surged to new all-time highs in the following days. BTC hit an all-time high of $73,780 on March 13 and has seen continued volatility since that time.



Read more: <a href="https://blockworks.co/news/bitcoin-all-time-high">Bitcoin price surges past $69K to hit new all-time high</a>



Some market-watchers have <a href="https://blockworks.co/news/empire-newsletter-start-to-bitcoin-halving-week">pointed to macroeconomic factors</a> for the volatility around bitcoin, like persistent inflation in the United States. Traditional equities, too, are in the red today, <a href="https://www.marketwatch.com/market-data">according</a> to MarketWatch, with the S&amp;P, Dow and Nasdaq trading down as of 12:25 pm ET.&nbsp;



As Blockworks’ Casey Wagner reported in today’s <a href="https://blockworks.co/newsletter/empire">Empire newsletter</a>, the macro picture is a complicated one —&nbsp;and will likely remain so given that Fed Chair Jerome Powell has indicated that long-signaled rate cuts will take longer than anticipated.&nbsp;



“The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence,” Powell said Tuesday during a press conference.



Read more: <a href="https://blockworks.co/news/bitcoin-slip-powell-delay-rate-cuts">Cryptos slip as Powell doubles-down on delaying rate cuts</a>



The timing of today’s price decline is also notable because bitcoin is set to undergo a transaction reward <a href="https://blockworks.co/news/bitcoin-halving-grayscale-interview">halving</a> this weekend. The number of new bitcoins produced per block will fall from 6.25 BTC to 3.125 BTC. The halving is expected to occur late Friday or early Saturday ET, according to estimates. 



Ethereum’s native asset (<a href="https://blockworks.co/price/eth">ETH</a>) accompanied bitcoin in its own brief dip below a key level. According to TradingView, ETH dropped to a local low of $2,914 before recovering somewhat. At the time of writing, ETH is trading at around $2,965.



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Bitcoin dips below $60K as pre-halving volatility reigns

Following the Bitcoin halving, some mining behemoths appear poised to take a more aggressive approach than others when it comes to acquiring machines, properties and even companies.



A number of segment companies have <a href="https://blockworks.co/news/mining-firms-prepare-for-bitcoin-halving">touted their preparedness ahead of the halving</a>, an event after which per-block mining rewards go lower.



After the halving — expected to hit on April 19 or 20 — miners will collect 3.125 BTC for each block it mines, down from the current level of 6.25 BTC.



Industry watchers expect the per-block reward reduction to spur pain for miners, particularly ones with less capital to deploy and higher energy costs.&nbsp;



Read more: <a href="https://blockworks.co/news/bitcoin-halving-crypto-miner-consolidation">Bitcoin miner consolidation appears imminent as halving looms</a>



While there is little doubt consolidation across the space will take place, the specific shape those mergers and acquisitions (M&amp;A) will take — and who will be on each side of the deals — remains up in the air.



<h2 class="wp-block-heading">Those poised to acquire&nbsp;&nbsp;</h2>



The best positioned acquirers appear to be the ones with the biggest balance sheets.&nbsp;



Enter Marathon Digital and <a href="https://blockworks.co/tag/riot-blockchain">Riot Platforms</a>, which each had more than $1 billion worth of combined cash and BTC at their disposal as of March 31.



<a href="https://blockworks.co/tag/marathon-digital">Marathon Digital</a> executives said it would <a href="https://blockworks.co/news/marathon-digital-2023-q4-earnings">use the “dry powder” on its balance sheet</a> to help it roughly double its hash rate to 50 exahash per second (EH/s) by the end of 2025.&nbsp;&nbsp;



The company has already started, buying <a href="https://blockworks.co/news/bitcoin-mining-giant-gets-bigger">two facilities in Texas and Nebraska</a> — before then purchasing another facility owned by Applied Digital for $87 million in cash.&nbsp;



Adam Swick, the Florida-based miner’s chief growth officer, told Blockworks last week that Marathon could step in after the <a href="https://blockworks.co/tag/bitcoin-halving">halving</a> to buy machines and sites from industry peers who “stumble” — or potentially purchase companies outright.&nbsp;



Read more: <a href="https://blockworks.co/news/marathon-digital-outlook-bitcoin-halving">Miner Marathon poised to acquire, expand after Bitcoin halving, exec says</a>



Riot Platforms has focused on buying new mining machines, <a href="https://blockworks.co/news/riot-plots-hash-rate-growth">ordering 66,560 MicroBT machines</a> for $290.5 million in December and 31,500 more miners in February.



The company noted in a news release earlier this month that it intends to deploy these miners in its facilities throughout 2024 and 2025, ultimately raising its self-mining hash rate capacity to 41 EH/s. It also continues to <a href="https://www.riotplatforms.com/bitcoin-mining/corsicana/">expand</a> upon its facility in Navarro County, TX.&nbsp;



A Riot spokesperson did not immediately return a request for comment on the company’s post-halving <a href="https://blockworks.co/tag/m&amp;a">M&amp;A</a> strategy.&nbsp;



But more machine buys are very likely for Riot given that it had an option to purchase up to 265,000 more MicroBT miners after its 66,000-plus machine order in December. That would bring its self-mining capacity to 100 EH/s over the long-term, the company has said.&nbsp;



CleanSpark has been vocal about its acquisition intentions, noting it plans to be an active buyer within the post-halving M&amp;A market.&nbsp;



The Las Vegas-based company, like Marathon, has bought sites ahead of the halving, <a href="https://blockworks.co/news/cleanspark-site-acquisition-bitcoin-halving">purchasing three facilities in Mississippi</a> for $19.8 million. CleanSpark had about $300 million in cash and 5,021 BTC — worth about $310 million on Tuesday at 12 pm ET — as of March 31.



“We are now looking beyond halving and expect to be highly active over the coming months given that we have the balance sheet and capital tools to make us one of the most aggressive acquirers in the industry,” CEO Zach Bradford said in a statement.



<a href="https://blockworks.co/tag/core-scientific">Core Scientific</a>, a mining giant that emerged from bankruptcy in January, is set to be more “pragmatic” when considering infrastructure growth via M&amp;A, CEO Adam Sullivan said last month.



“We’re going to be much more opportunistic on the machine purchase side…in not only 2024, but 2025, because our opportunity to grow our exahash is really within our existing facility base,” he added.



Read more: <a href="https://blockworks.co/news/adam-sullivan-core-scientific-bitcoin-halving">Core Scientific CEO: Machine buys, deleveraging key around Bitcoin halving</a>



As for <a href="https://blockworks.co/tag/hut-8">Hut 8</a>, CEO Asher Genoot said last month the company <a href="https://blockworks.co/news/hut-8-growth-bitcoin-halving">does not plan on growing “at all costs”</a> — noting that the decision to build scale or buy scale will depend on the price.&nbsp;



“We’re very active in the M&amp;A markets, but we’re also very cost-conscious,” Genoot noted at the time. “We’re not going to overpay because we know what the cost is to develop ourselves as well, so we’re running both in parallel very aggressively.”



<h2 class="wp-block-heading">Who could be a seller post-halving?</h2>



Applied Digital agreed to sell its facility in Garden City, TX to Marathon last month for $97.3 million as part of a shift in focus to building out its high-performance computing data centers.



A company spokesperson declined to comment about whether it could look to sell more assets or properties after the halving.&nbsp;



Another pre-halving seller is Greenidge Generation, which agreed to sell to NYDIG roughly 25 acres of land and 44 megawatts (MW) of <a href="https://blockworks.co/tag/mining">mining</a> capabilities in Spartanburg, SC. The deal closed in November. The deal helped the company reduce its debt by about $85 million in 2023.&nbsp;



But Greenidge has also built its power capacity through acquisitions and development, noted CEO Jordan Kovler. It most recently purchased 12 acres in Mississippi with 32.5 MW of mining capacity.



Kovler added that the company could look to buy private miners and additional properties after the halving.&nbsp;&nbsp;&nbsp;



“We continue to evaluate potential M&amp;A and partnership opportunities, especially those that will help us make progress against our key <a href="https://blockworks.co/tag/artificial-intelligence">AI</a> initiatives to expand data center capacity and further grow Greenidge’s access to low-cost power,” he said.



When asked about potentially being a seller, Kovler added: “We are always open to discussing any transaction — [whether] it is a specific site or a merger with another company — provided that the transaction has financial merit and will create value for Greenidge’s shareholders.”



Compass Point Research &amp; Trading analyst Joe Flynn said in an April 9 research note that Stronghold Digital’s debt and limited access to capital markets puts it at a disadvantage to some peers. The company could benefit from selling its “valuable” infrastructure, he added.&nbsp;



Stronghold CEO Greg Beard told Blockworks that if Stronghold is deemed an attractive M&amp;A target by an industry peer, such a deal would be “something to consider.”&nbsp;



Read more: <a href="https://blockworks.co/news/bitcoin-halving-outlook-for-public-miners">Financial trouble for bitcoin miners: A look back, and ahead as the halving looms&nbsp;</a>



Argo Blockchain said in December 2022 <a href="https://blockworks.co/news/argo-bankruptcy-still-on-the-table">it was looking to avoid bankruptcy</a> despite having “insufficient cash” to sustain operations for much longer.



The company last month closed on the sale of its facility in Mirabel, Quebec — using the $6.1 million in proceeds to pay the remaining mortgage on the facility and reduce its outstanding debt to Galaxy Digital.



Argo Blockchain declined to comment on potential further sales.&nbsp;



<h2 class="wp-block-heading">Big deals between public miners could be sparse&nbsp;</h2>



Elliot Chun, a partner at crypto advisory firm Architect Partners, previously told Blockworks he expects “meaningful” mining-related M&amp;A in the second half of 2024 and into next year — noting “a much healthier buyer set.”&nbsp;&nbsp;



But Chun said he doesn’t expect any large publicly traded bitcoin miners to join forces around the halving — barring a play to diversify geographically.



“If you made it through this last cycle, I think you have confidence that [your] growth strategy, as well as your operating acumen, is very high,” he said.



Galaxy analysts wrote in a February <a href="https://www.galaxy.com/insights/research/bitcoin-big-halving-year/">report</a> that the better capitalized miners and more liquid miners with low debt levels are more likely to scoop up smaller miners. Private miners that are vertically integrated, or those with low valuations, may be attractive targets as well, they said.



Matthew Schultz, executive Chairman of CleanSpark, said during a Tuesday X Space that “ongoing discussions” have taken place between public mining companies in recent months.



“The issue is when you look at consolidation, the point is to grow and benefit from scale,” he added. “The only reason that a company would be acquired rather than be the acquirer is if they have a less efficient fleet.”



A number of <a href="https://blockworks.co/news/bitcoin-halving-impact-on-at-home-miners">smaller and less efficient miners</a> will be forced to unplug post-halving. While that could present opportunities for consolidation as larger miners look to buy those companies’ data center space, the value of such a firm could extend only to its infrastructure.



“As far as a headline-grabbing transaction, there might be one or two,” Schultz said. “But I think for the most part the majority of the [larger public miners] are well-positioned for halving.”



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Buyers and sellers: How bitcoin miners are thinking about post-halving M&A

Jack Kubinec

The iris-scanning identification platform Worldcoin plans to launch a layer-2 later this summer, the project announced Wednesday morning.&nbsp;



Currently, Worldcoin runs on the popular Ethereum rollup Optimism. Worldcoin’s layer-2, named World Chain, will be built using Optimism’s software set, the OP Stack. World Chain will use its proof of personhood technology alongside financial incentives to try making it harder for bots to turn a profit.



Worldcoin is a Sam Altman-backed startup using biometric data to, in the project’s telling, distribute a universal currency and verify humanness in the age of AI. Worldcoin <a href="https://blockworks.co/news/worldcoin-not-in-us">launched over the summer</a> and just recently <a href="https://worldcoin.org/blog/announcements/tfh-world-app-passes-10-million-users">surpassed</a> ten million users on its World App wallet.&nbsp;



<a href="https://blockworks.co/tag/worldcoin">Worldcoin</a> says with the growing usage, its current blockchain home is getting a bit cramped. Tiago Sada, the head of product, engineering and design at Worldcoin developer Tools For Humanity, <a href="https://dune.com/queries/3251203/5440632?Chain+List_e71750=OP+Mainnet&amp;Summary+-+Trailing+Num+Days_n26d66=14">told</a> Blockworks that approximately 43% of all activity on Optimism is currently related to Worldcoin.



In an interview with Blockworks, <a href="https://blockworks.co/tag/optimism">Optimism</a> Chief Growth Officer Ryan Wyatt said Worldcoin migrating from Optimism to the OP stack “builds on the momentum” the software has seen with partners also including Base and ZORA. Projects built with the OP Stack share 2.5% of sequencer revenue with the Optimism Foundation, Wyatt added.&nbsp;



Read more: <a href="https://blockworks.co/news/evm-smart-contract-deployments-optimism">Two-thirds of EVM smart contract deployments in 2024 are from Optimism: Report</a>



There are many <a href="https://blockworks.co/tag/layer-2-2">layer-2s</a> at this point, but Worldcoin thinks it can distinguish itself by prioritizing human transactions over bots. Bots and World Chain “power users” will pay&nbsp; slightly more in gas fees to subsidize gas for casual users, most of whom only transact on-chain a couple of times per month, Sada said.&nbsp;



Trading bots are popular in crypto for things like executing trades faster or carrying out automated strategies. A slew of DEX bots tracked by a Dune <a href="https://dune.com/whale_hunter/dex-trading-bot-wars">dashboard</a> did $131 million in daily volume over the past seven days.&nbsp;



Bots can make blockchains less workable for human users though. Bot-related spam is partially <a href="https://x.com/0xMert_/status/1776023674098754014">culpable</a> for Solana’s recent congestion woes, for example.



Read more: <a href="https://blockworks.co/news/solana-network-congestion-transaction-volume">Solana’s cheap fees are turning out to be a curse — for now</a>



The Worldcoin Foundation, a non-profit supporting Worldcoin’s development, will collect the higher gas fees from bots and redistribute them to humans, Sada noted.&nbsp;



“It&#8217;s not even a fair competition,” Sada said of bots trading against humans. “All blockspace goes to bots and then just the [leftovers] can go to humans, and so we want to flip that.”



On World Chain, humans will not only pay less in gas fees but will also be “prioritized for faster confirmation times,” according to a press release.&nbsp;



Worldcoin hopes its bot disincentivization will drive more organic usage on its layer-2. Iris-scanned World App users get WLD airdropped to them every two weeks — and WLD will be used as a gas token on World Chain. Worldcoin’s core team will focus on developing an ecosystem of real-world apps focused around things like payments, stablecoins and identity, Sada said.&nbsp;



Still, Worldcoin’s anti-bot focus could strip the layer-2 of a large driver of trading volume on blockchains.&nbsp;



Bots can create a revenue stream that Worldcoin might lose, Wyatt conceded, but he noted: “If you think about Worldcoin prioritizing humans and actually having ten million users, it&#8217;s not crazy to see them get to 100 million, 300 million users in the future.”



“Maybe there&#8217;s short term opportunities that they miss out on revenue, but you&#8217;ve got to play the long ball here and they are well positioned to do so,” Wyatt said.&nbsp;



WLD tokens currently <a href="https://www.coingecko.com/en/coins/worldcoin">trade</a> at around $4.94, per CoinGecko. The project’s idea of a universal basic income may be seeing some promising early returns: One user recently used his WLD to <a href="https://x.com/tiagosada/status/1775646587857039662">buy</a> himself a goat. 



But it hasn’t been all sunshine and farm animals in Worldcoin land. The platform continues to face regulatory scrutiny over its data collection methods. Worldcoin is <a href="https://blockworks.co/news/worldcoin-taking-legal-action-against-spain">battling a temporary block</a> on its data collection in Spain. Portugal similarly issued a temporary <a href="https://www.reuters.com/markets/currencies/sam-altmans-worldcoin-ordered-stop-data-collection-portugal-2024-03-26/">halt</a> on Worldcoin data collection late last month. <a href="https://blockworks.co/news/worldcoin-kenya-regulators">Regulators in France, Germany, and Kenya</a> have also expressed concerns about Worldcoin.



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Worldcoin teases ‘World Chain’ layer-2

Casey Wagner

Bitcoin’s next halving event, where the reward for miners is cut in half, is slated to come any day now.&nbsp;



Historically, halving events have been followed by new all-time high prices for bitcoin, so traders are optimistic. But given bitcoin’s recent run, escalating geopolitical tensions, and an increasingly uncertain macroeconomic outlook, analysts say this time could be different.&nbsp;



Blockworks sat down with <a href="https://blockworks.co/tag/grayscale">Grayscale</a> researcher Michael Zhao to discuss the possible outcomes and get tips on what investors should be watching.&nbsp;



Keep reading for excerpts from Blockworks’ interview with Zhao.



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Blockworks: What does history tell us about halving cycles and pricing?



Zhao: While there have only been three halvings in the past, there tends to be a price increase after the halving after a few months. Given there’s a sample size of only three previous events, it&#8217;s hard to say that the price increase is due to the halving. The halving itself is already known to all market participants, so something like a decrease in issuance that’s already well-known theoretically shouldn’t impact the market at all.&nbsp;&nbsp;



Blockworks: What is different, if anything, about this <a href="https://blockworks.co/tag/bitcoin-halving">halving</a>? What impact will this have on pricing?&nbsp;



Read more: <a href="https://blockworks.co/news/state-of-bitcoin-development-ahead-of-halving">Here’s what the current state of Bitcoin development looks like ahead of the halving</a>



Zhao: The halving means the Bitcoin protocol is working exactly as it was programmed to. I think the only difference between this halving and the last halving is the different market dynamics between one: ETF flows representing a counter to an even lower issuance [and] two:<a href="https://blockworks.co/news/binance-ends-support-for-bitcoin-nfts"> increased activity around ordinals</a> and excitement surrounding Runes.&nbsp;



ETF flows seem to be a pretty straightforward story that’s been covered extensively; reducing the inflation rate by halving brings down potential sell pressure. While 3.125 BTC per block might seem like a small number, assuming there are around 52000 BTC produced annually post halving, at a price of $70,000, that’s $3.6 billion of potential sell pressure that is reduced annually. It adds up.&nbsp;



<a href="https://blockworks.co/tag/ordinals">Ordinals</a> and the Runes launch (Runes are essentially another standard for a fungible token on <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a>) will probably spike transaction fees on the day of the halving and will continue to see more and more interest from the crypto native crowd. I’m unsure if this will cause anything significant for price, but this activity will be beneficial for miners, who will see increased transaction fees.



Blockworks: We&#8217;ve seen increased institutional and retail interest in recent years, especially <a href="https://blockworks.co/news/sec-approves-bitcoin-etf">with the launch of bitcoin ETFs</a>. How are these investors thinking going into the halving?&nbsp;



Read more: <a href="https://blockworks.co/news/etfs-helped-legitimize-bitcoin-halving-cme">ETFs helped ‘legitimize’ bitcoin ahead of halving: Q&amp;A</a>



Zhao: I think broadly that others think that price will increase post-halving, given what they’ve read or seen. I think they are probably right. I would caution them that they should study both the crypto and <a href="https://blockworks.co/news/empire-newsletter-start-to-bitcoin-halving-week">macro environments surrounding</a> each of the previous halvings and understand how those factors might have had a larger impact on Bitcoin’s price, more so than the halving itself.&nbsp;



Blockworks: The narrative around the halving seems to be price-positive, but are there potential downsides?



Read more: <a href="https://blockworks.co/news/bitcoin-halving-outlook-for-public-miners">Financial trouble for bitcoin miners: A look back, and ahead as the halving looms&nbsp;</a>



Zhao: It might be a stretch, but there seems to be a competition between the miners right now, where some players are trying to crowd out other players by increasing hash rate, selling bitcoin etc., making it less profitable to mine. While miners have become a smaller and smaller source of Bitcoin volume over time, <a href="https://blockworks.co/news/bitcoin-halving-btc-price-implications">the price of bitcoin could be impacted</a> by this sort of internal competition amongst miners. However, I expect that this won’t be that big of a deal long-term.



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Q&A: What to watch ahead of the bitcoin halving 

David Canellis

Katherine Ross

<h2 class="wp-block-heading">The great monolithic hope</h2>



As Solana users wait to see whether a new patch makes it any easier for transactions to go through, it’s clear there’s a lot riding on it.



Besides Bitcoin, Solana is arguably the poster-boy for monolithic blockchains. Much of Solana’s thesis rests on the notion that it’s decentralized to the point that it can’t be easily compromised, while being fast and cheap enough to handle everything that degenerates can throw at it (like memecoins).



If Solana can do all that without suddenly becoming hyper-expensive — as has been the case with Ethereum and Bitcoin when onchain activity is high — then it must be valuable.



Solana Labs wants to achieve that while keeping the overwhelming majority of transactions entirely on mainnet. Co-founder Anatoly Yakovenko has been <a href="https://blockworks.co/news/lightspeed-yakovenko-layer-2-scaling">outspoken</a> about the importance of doing so from a user experience perspective.&nbsp;



The thinking goes like this: Why risk fragmenting Solana’s user base — and all that liquidity — by spreading them across multiple blockchains, each with their own set of apps and risk profiles? It’s not like that turned out <a href="https://blockworks.co/news/noble-solve-cosmos-liquidity">great for Cosmos</a>.



Scaling by tinkering with the base layer may be more effective in the long run. One part of this week’s v1.17.31 <a href="https://github.com/solana-labs/solana/commit/3a7c03365262bb6907505deaa3eb61c4c9d7e02f">patch</a>, for instance, aims to make it easier for high-quality Solana validators — those with more SOL staked than others — to post transactions by penalizing low-quality validators, or those with ultra-low SOL stakes.&nbsp;



The apparent idea is that largely ignoring low-quality Solana validators might allow the larger network to prioritize legitimate users, namely over the memecoin-trading arbitrage bots that have <a href="https://blockworks.co/news/solana-network-congestion-transaction-volume">flooded the network</a> these past few months.



Tracking the efficacy of the new update is difficult, as is the impact of transaction-heavy projects like Ore <a href="https://blockworks.co/news/solana-price-falls-ore-mining">suspending operations</a> as fixes take shape. The number of failed transactions in each block is more-or-less <a href="https://dune.com/ilemi/solana-compute?hours_t66b1c=120">steady</a>, but that doesn’t at all reflect Solana’s actual congestion.



Solana’s spam problem can only really be measured by the number of transactions that are “dropped,” or ones that are submitted for validation but never actually reach the chain. Only the individuals running validator nodes themselves have that data — and few if any actively report those figures. All other evidence is anecdotal, and there’s still the odd X post indicating some degree of dropped transactions.



<figure class="wp-block-image"><img loading="lazy" decoding="async" width="1387" height="1003" src="https://blockworks-co.imgix.net/wp-content/uploads/2024/04/image.png" alt="" class="wp-image-84349" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2024/04/image.png?w=1387 1387w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/image.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/image.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/image.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/image.png?w=355 355w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/image.png?w=361 361w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/image.png?w=303 303w, https://blockworks-co.imgix.net/wp-content/uploads/2024/04/image.png?w=80 80w" sizes="(max-width: 1387px) 100vw, 1387px" /><figcaption class="wp-element-caption">Solana, in orange, took over a decent chunk of the blockchain fee market as memecoin mania set in</figcaption></figure>



Perhaps tracking fees paid to use the Solana network offers some insight into how users operate. During the first week of the year, Solana raked in less than 3% of the total fees across 11 major blockchains, including Bitcoin, Ethereum, Polygon PoS, Tron and BSC, as well as layer-2 networks Base, Arbitrum and Optimism.



During the third week of March, when peak memecoin mania reigned, Solana users paid almost $24.4 million to transact — more than 14% of all fees brought in by the analyzed blockchains. Only Ethereum and Tron generated more fees in that week.



Solana’s share of those fees has shrunk ever since — now down to 8% after falling to $13.75 million last week. Tron and Bitcoin, meanwhile, are seeing comebacks.&nbsp;



Overall, users of these networks have paid more than $2.42 billion in fees in 2024 so far, according to Token Terminal data.&nbsp;



Crypto moves fast, and Solana has indeed moved quickly to mitigate the poor user experience.&nbsp;



But if it can’t stick the landing soon, its share of those fees may very well diminish, alongside the monolithic thesis.



—- David Canellis



<h2 class="wp-block-heading">Data Center</h2>



<ul>
<li>Out of the blockchains above, Solana is so far fourth for fees generated in 2024, with $129.9 million leading into this week.</li>



<li>Ethereum, Tron and Bitcoin are leading, with $1.32 billion, $440.6 million and $342.25 million, respectively.</li>



<li>Ether is again slightly <a href="https://ultrasound.money/">inflationary</a>, adding 1,617 ETH ($4.92 million) to the supply over the past seven days.</li>



<li>Uniswap, Lido and PancakeSwap are the top three <a href="https://defillama.com/">protocols</a> for fees this week, with $32.5 million, $23.7 million and $11.8 million, per DeFiLlama.</li>



<li>More than $6 billion in fresh stablecoins have been added onchain in April, adding up to a total $156.92 billion.</li>
</ul>



<h2 class="wp-block-heading">No pain, no gain</h2>



The halving is set to take place this weekend, dropping mining rewards down to 3.125 BTC per block.



In 2020 — the last time bitcoin underwent the quadrennial event — the price dropped nearly 20% right before the rewards were lowered, falling to $8,106 from a top of $9,876 in the halving run-up.



Obviously, this <a href="https://blockworks.co/news/history-of-bitcoin-halvings-2">halving looks quite different</a>. Not only did bitcoin carve out new all-time highs, but newly launched spot ETFs opened new doors. Global events are impacting bitcoin’s price, too — just last weekend, Iran attacked Israel and bitcoin dropped nearly 10% before slightly regaining.&nbsp;



Before this month, bitcoin notched a seven-month streak of gains. But as Hashdex CIO Samir Kerbage points out, “corrections are part of the process of recovery and bull market cycles.”



Kerbage thinks that bitcoin could see a pullback to the mid-$50,000 range, which would fall in line with past halving cycles. Bitcoin’s previously seen mid-cycle corrections of 30%.&nbsp;



The range given by Kerbage is slightly more positive than other potential outcomes. JPMorgan analysts, for example, believe that bitcoin could drop to around $40,000 post-halving.



The pullback could “point to a very bullish consolidation after a huge leg up over the past two quarters, similar to what BTC experienced from April to September of last year,” Kerbage said.



A correction now doesn’t change an overall positive outlook for bitcoin through the end of this year, Kerbage added, echoing what other analysts have called for. Standard Chartered, for example, believes bitcoin could top $150,000 by the end of this year.&nbsp;



— Katherine Ross



<h2 class="wp-block-heading">Trading like a tech stock&nbsp;</h2>



You’re probably focused on this week’s Bitcoin halving. But keeping an eye on the macro landscape isn’t a bad idea right now.&nbsp;



Stocks and cryptos may have recovered from Fed Chair Jerome Powell’s <a href="https://blockworks.co/news/bitcoin-slip-powell-delay-rate-cuts">market-moving comments yesterday</a>, but we are not out of the woods when it comes to macro headwinds.&nbsp;



The Dow, S&amp;P 500 and Nasdaq indexes were all in the green during pre-market trading this morning after a disappointing close. Equities took a turn yesterday afternoon after Powell once again indicated that persistent inflation means any and all interest rate cuts will have to be put on the back burner.&nbsp;



“The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence,” Powell said.



Crypto traders didn’t seem to like the comments either. But as of this morning, <a href="https://blockworks.co/price/btc">bitcoin</a> and <a href="https://blockworks.co/price/eth">ether</a> had posted modest recoveries. Bitcoin is still hovering around $63,000, though; it has a long way to go to reach the new all-time high that bulls are hoping will come after the halving.&nbsp;



March’s CPI print last week showed inflation is still elevated, coming in at 3.5% year over year. It’s a far cry from the 2% target central bankers want to see. Plus, a remarkably healthy labor market and retail sales show the US economy is on solid ground.&nbsp;



A booming economy isn’t bad news — unless you were betting on interest rates coming down. If things keep up, we won’t see a rate cut until the fall, if we even get one this year.&nbsp;



Powell, never one to spook markets if he can help it, hasn’t totally abandoned his earlier outlook that a couple rate cuts will come this year. But markets are increasingly thinking we’ll only see one decrease before 2025.&nbsp;



Central bankers will meet six more times before the end of the year, with the next meeting scheduled for May 1.&nbsp;



CME fed futures data shows a 2% chance of a rate cut in May, which is actually up from the estimate yesterday afternoon of a 0.4% chance.&nbsp;



— Casey Wagner



<h2 class="wp-block-heading">The Works</h2>



<ul>
<li>The SEC is <a href="https://www.bloomberg.com/news/articles/2024-04-16/sec-targets-its-own-staff-s-texting-nixes-whatsapp-on-agency-s-mobile-phones?utm_source=twitter&amp;utm_campaign=socialflow-organic&amp;utm_content=crypto&amp;utm_medium=social">blocking</a> third-party messaging apps such as WhatsApp and iMessage for employees.&nbsp;</li>



<li>NFTs are <a href="https://www.paypal.com/us/legalhub/upcoming-policies-full?locale.x=en_US&amp;v=1&amp;utm_source=unp&amp;utm_medium=email&amp;utm_campaign=RT002546&amp;utm_unptid=c09814e8-fbef-11ee-b99a-3cecef476576&amp;ppid=RT002546&amp;cnac=US&amp;rsta=en_US%28en-US%29&amp;cust=&amp;unptid=c09814e8-fbef-11ee-b99a-3cecef476576&amp;calc=62d42c0952025&amp;unp_tpcid=online-user-agreement-change-email&amp;page=main%3Aemail%3ART002546&amp;pgrp=main%3Aemail&amp;e=cl&amp;mchn=em&amp;s=ci&amp;mail=sys&amp;appVersion=1.246.0&amp;tenant_name=PayPal&amp;xt=145585%2C104038%2C124817&amp;link_ref=ua_upcoming-policies-full">getting the boot</a> from PayPal’s purchase and seller protection programs starting May 20.&nbsp;</li>



<li>One US senator wants to <a href="https://www.bloomberg.com/news/articles/2024-04-16/stablecoin-law-push-gets-surprise-boost-from-crypto-skeptic-sherrod-brown">combine</a> stablecoin rules with marijuana banking regs, according to Bloomberg.&nbsp;</li>



<li>Snap is adding a <a href="https://techcrunch.com/2024/04/17/snap-plans-to-add-watermarks-to-images-created-with-its-ai-powered-tools/">watermark</a> to AI-generated images on its platform, TechCrunch writes.&nbsp;</li>



<li>New Zealand’s central bank is <a href="https://consultations.rbnz.govt.nz/money-and-cash/digital-cash-in-new-zealand/">undertaking</a> a public consultation on CBDCs as part of a “multi-year” digital cash project.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">The Morning Riff</h2>



What do Norway and Arkansas have in common?



If you guessed “looming restrictions on the bitcoin mining industry,” congrats!&nbsp;



Norway’s government is developing data center-centric legislation that would allow them to potentially push crypto mining facilities out of the country, according to Norwegian media outlet <a href="https://www.vg.no/nyheter/i/9zgyxq/regjeringen-slaar-ned-mot-krypto-datasenter-uoensket-i-norge">VG</a>.&nbsp;



Terje Aasland, the country’s energy minister, reportedly believes that crypto miners are an “unwanted” energy consumer.&nbsp;



Down in Arkansas, meanwhile, legislators are responding to what appears to be local backlash around crypto mining. Specifically, there’s heartburn over a law passed last year that, according to critics, shielded mining firms from local regulations.&nbsp;



Allegations that industry essentially crafted its own rules abound, the <a href="https://arktimes.com/arkansas-blog/2024/04/16/eight-resolutions-on-crypto-mines-advance-out-of-house-committee">Arkansas Times</a> writes, spurring a new round of lawmaking in the state legislature to rework or repeal that earlier measure.&nbsp;



Let’s hope those mining firms have their houses in order ahead of the halving.&nbsp;



— Michael McSweeney



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Empire Newsletter: Solana patch targets congestion woes

<h2 class="wp-block-heading">Party pooper in chief</h2>



There are concerns over whether the SEC’s targeting of Uniswap Labs will rain on DeFi’s parade heading into the next potential phase of the current bull market.&nbsp;



Gensler’s <a href="https://blockworks.co/news/sec-issues-uniswap-wells-notice">legal threats</a> may chase innovators offshore and trigger a Web3 brain drain. Or perhaps crypto projects, which may have launched in the US, simply won’t debut at all, for fear of a Wells notice — or worse.&nbsp;



Uniswap Labs CEO Hayden Adams <a href="https://twitter.com/haydenzadams/status/1778126466984575166">swore</a> to fight any lawsuit that comes its way, but the market has still sharply reacted. <a href="https://blockworks.co/price/uni">UNI</a> — the native crypto of the Uniswap exchange which doubles as a DAO governance token — sank as much as 45% after the notice was disclosed last week and has barely bounced back.



UNI’s losses were enough to pull the DeFi sector below centralized finance (CeFi) in terms of market dominance for the first time in over three years, per data from The Tie.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/tqGk2qmKe5FIzgdPYhKw066Gs1zBzQYxTAZpD-0l_Lx4fveVmJGViUbCLg84jFQPNecE3Yn8oFy5Yf1CMG9WXajnlS4MQswzGR7jzYDtITODJNwYJen0Mna6MMOtjJ3knGPe12-_kLvdiLjN3mFB55g" alt=""/></figure>



Each line shows indexed market dominance for different sectors, based on capitalizations of cryptocurrencies related to those segments. CeFi consists of native tokens for exchanges including OKX’s OKB and Bitfinex’s LEO, alongside those for centralized lending platforms like Nexo, and many more.



DeFi is otherwise made up of cryptocurrencies tied to DAOs and protocols including Uniswap, Maker, Athena, and Aave, among others. CeFi is currently about 4.3% of the total crypto market while DeFi represents nearly 3.6%.



Despite their outsized mindshare, memecoins are only 2% of crypto. Memecoins held practically the same dominance in April 2021, as bitcoin neared its first major peak of that year. So, memecoins aren’t exactly bigger today than during the last bull market.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/QrVehrHCT6h5lJKJDvBsehzWBNYU-GR2h8WMSQWBUPQVXMt8hNBgvZyWtTRnXcIscQZEfqGFUcdjNSbLi5EwRwzJgD2y6yTlL_EQw3YM88DG28LjrG--n8C8Vn95ZTjYG_wFuSi9xBk1V8se1P_dfJY" alt=""/></figure>



Dogecoin’s lackluster performance against bitcoin is largely to blame for the segment lagging behind. A raft of new memecoins have indeed exploded in value, but that hasn’t been enough to make up for dogecoin’s underperformance.



Other big plays of this cycle — DePIN, real-world assets and decentralized social media — are seeing varied success. DePIN’s dominance has actually been cut by more than half over the past three years, from 1.85% to 0.72%.&nbsp;



But again, a segment leader has dragged the rest down with it, with filecoin (<a href="https://blockworks.co/price/fil">FIL</a>)’s bitcoin ratio collapsing by more than 65% over the past year. Render, which powers the decentralized computing marketplace of the same name, is now practically tied with FIL for largest DePIN cryptocurrency by market cap, after its bitcoin ratio more than doubled in the past year.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/7FceuAy24HvH_KrxqSJ9x_8ATbK7WeQIbK73TJ65d3OoIlTKZXw69bdsvDnszjidQY3KexU1leluCMqfzQAd3CNPi6cGrl5ybNeny07EysyRVDO-4fvOKu-dXB_P_FgtOH5SsGkXT63xzlZtoIrE2v4" alt=""/></figure>



SocialFi has meanwhile tripled its market dominance in three years, from 0.03% to 0.09%. Tokens tied to real-world asset platforms like Centrifuge, Goldfinch and Ondo have gained even more, blowing past SocialFi, as well as last cycle’s favorites move-to-earn and fan tokens.



Read more: <a href="https://blockworks.co/news/socialfi-web3-social-media">What is SocialFi? Unpacking crypto’s answer to social media</a>



All this goes to show that finding success in crypto markets isn’t just about picking the next big narratives. It also takes backing the right horses in each race, with age seemingly often working against former front-runners.



The same can’t be said for bitcoin. Its market dominance is near its three-year highs, now 54%, as rival <a href="https://blockworks.co/tag/layer-1">layer-1s</a> lose ground on the whole.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/rvlhyyh7sB2wwXhReMia4fnTetY1449uT1hy_oyULjyzt4RrInIl4_CZizHyzRCn8b7PE4dZoBZA2fVQTr4BpnU-0NzqOYBqFHdqa7on2mYPE1cQN6AEv91GQIOJFI9OIuoGA82vlHFyjoQI9SlOmDk" alt=""/></figure>



— David Canellis



<h2 class="wp-block-heading">Data Center</h2>



<ul>
<li>The total ETH locked in Ethereum mainnet DeFi is up to 16.32 million ETH ($48.62 billion), the most in over a year. SOL in Solana DeFi has so far <a href="https://defillama.com/chain/Solana?currency=SOL">stayed</a> flat in April.</li>



<li>Meanwhile, nearly 21,909 validators are <a href="https://www.validatorqueue.com/">queued</a> to join the Ethereum blockchain — a six-month high.</li>



<li>Base now has more native <a href="https://defillama.com/stablecoins/chains">stablecoins</a> than Avalanche: $2.05 billion to $1.72 billion. Most of it is USDC, after a recent pledge to move Coinbase customer deposits to the network.</li>



<li>Margin.fi’s <a href="https://defillama.com/protocol/marginfi?tvl=true&amp;medianApy=false&amp;denomination=SOL">bleeding</a> has slowed since its founder quit. It lost one-third of its total SOL stake in the days following, dropping from around 4.4 million SOL to 2.84 million SOL.</li>



<li>$256.6 million in longs have been <a href="https://www.coinglass.com/LiquidationData">liquidated</a> on centralized exchanges in the past 24 hours.</li>
</ul>



<h2 class="wp-block-heading">All aboard the ETF train</h2>



It’s 13F szn.&nbsp;



The SEC’s 13F form requires institutional investment managers to disclose their holdings quarterly if they manage over $100 million in assets.&nbsp;



Throughout our reporting since January, multiple analysts and experts have highlighted the 13F filing because this batch is our first look at who’s investing in the newly launched funds on an institutional level.&nbsp;



On the other hand, it’s still early for a lot of institutional investors. So we may not see a lot of funds with a lot of assets under management (AUM) disclose holdings in a spot bitcoin ETF…yet.&nbsp;



Valkyrie’s <a href="https://blockworks.co/news/valkyrie-bitcoin-etf-wallet-address">Steven McClurg told Blockworks in February</a> that the firm had spoken to financial advisers and “overwhelmingly, the response is that they’re not ready yet.”



Because the quarter only ended last month, it’s still early for some of these firms to file their 13Fs, and many of the larger positions will likely be reported closer to May. But the early bird gets the worm, right?&nbsp;



So who is already in this space? There are a lot of smaller financial planner offices with exposure to various bitcoin ETFs. One of the first such firms to disclose holdings was Burkett Financial Services, which holds roughly 600 shares of BlackRock’s IBIT.&nbsp;



Read more: <a href="https://blockworks.co/news/bitcoin-halving-interview-bitgo-ceo">Despite bitcoin ETF approval, institutions are on the sidelines: BitGo CEO</a>



Then you have firms like <a href="https://www.sec.gov/Archives/edgar/data/1729677/000108514624001693/xslForm13F_X02/infotable.xml">LexAurum</a>, which holds nearly 12,000 shares of IBIT worth roughly $430K at current prices.&nbsp;



Brookstone Capital Management owns 85,000 shares of Fidelity’s bitcoin ETF and roughly 9,000 of Bitwise’s ETF, according to SEC <a href="https://www.sec.gov/Archives/edgar/data/1599584/000106299324008407/xslForm13F_X02/form13fInfoTable.xml">filings</a>.&nbsp;



These numbers may not be flashy or as big as some in crypto want. But they show that institutions are slowly entering the market and, if this trend continues, the appetite for <a href="https://blockworks.co/tag/bitcoin-etf">bitcoin ETFs</a> — and potentially other crypto-based ETFs — is poised to grow.



— Katherine Ross



<h2 class="wp-block-heading">Tax man inbound&nbsp;</h2>



Hopefully everybody filed their taxes yesterday, or at least sought an extension. The <a href="https://blockworks.co/tag/irs">IRS</a> is betting a lot of crypto players probably didn’t, however.&nbsp;



Guy Ficco, the IRS’s chief investigating officer, said over the weekend that the agency is preparing to battle more crypto tax crimes this year.&nbsp;



2024 may be one of the final years under the current US crypto-tax policy framework. In March, the Department of Treasury released its 2025 revenue proposals, including new ideas on how to cash in on crypto trading and related activities.&nbsp;



The IRS says it&#8217;s finally time to bring all digital assets under existing wash trading rules, a change that, if passed, would nix a popular — and oftentimes lucrative — trading strategy already banned in equity markets.&nbsp;



The Department wants to add a 30% excise tax on electricity used for any companies that mine crypto. If the proposal is adopted, miners would be required to report the amount and type of electricity used and the cost, when purchased externally.&nbsp;



Read more: <a href="https://blockworks.co/news/us-treasury-2025-greenbook-crypto-taxes">US Treasury once again proposes new crypto tax rules to “modernize” code&nbsp;</a>



Miners that lease equipment would also be responsible for reporting electricity values and firms that use off-grid power would have to pay 30% of estimated costs.&nbsp;



The Biden Administration first proposed excise taxes — along with a slew of other crypto tax rules — on miners last year, citing environmental concerns.&nbsp;



The plans haven’t gotten off the ground yet, so no need to rush to learn any new rules. In the meantime though, there are some things you can do now to make next April 15 a little easier.&nbsp;



<a href="https://blockworks.co/news/taxable-crypto-events-usa-2024">Keep a record of everything</a>. If you made a trade (even if it’s crypto to crypto) it’s probably a taxable event, so write it down. Airdrops have a tax burden, too, so don’t forget to record the initial value of whatever you received. There’s no such thing as free money!



— Casey Wagner



<h2 class="wp-block-heading">The Works</h2>



<ul>
<li>The Bank of England still hasn’t made up its mind on whether to <a href="https://uk.finance.yahoo.com/news/britcoin-hold-bank-of-england-blockchain-tech-152500661.html">issue</a> a CBDC, Yahoo Finance writes.&nbsp;</li>



<li>Franklin Templeton’s crypto team <a href="https://twitter.com/fti_da/status/1779979775651561691?s=46">explored</a> Runes, the upcoming token standard built on Bitcoin.&nbsp;</li>



<li>A group of banks and payment firms are <a href="https://www.bloomberg.com/news/articles/2024-04-15/barclays-citi-are-among-banks-testing-tokenized-deposits-in-uk">testing</a> tokenized deposits in the UK, according to Bloomberg.&nbsp;</li>



<li>Microsoft <a href="https://www.reuters.com/markets/deals/microsoft-invest-15-bln-emirati-ai-firm-g42-new-york-times-reports-2024-04-16/">bought</a> a $1.5 billion stake in G42, an AI startup based in the UAE, Reuters reports.&nbsp;</li>



<li>Sullivan &amp; Cromwell may <a href="https://www.bloomberg.com/news/articles/2024-04-15/ftx-controversy-derails-top-law-firm-s-bid-for-binance-role?utm_source=twitter&amp;utm_campaign=socialflow-organic&amp;utm_content=markets&amp;cmpid%3D=socialflow-twitter-markets&amp;utm_medium=social">lose</a> out on a job working with the DOJ on Binance oversight because of the law firm’s work for FTX, per Bloomberg.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">The Morning Riff</h2>



Leave it to <a href="https://blockworks.co/tag/ftx">FTX</a> to generate some bipartisan unity in Congress.



Senators <a href="https://blockworks.co/tag/elizabeth-warren">Elizabeth Warren</a>, D-Mass., and Chuck Grassley, R-Iowa, are about as far apart politically as two lawmakers in Washington can get.&nbsp;



But when it comes to <a href="https://www.warren.senate.gov/imo/media/doc/2024.04.12%20Letter%20to%20CFTC%20re%20FTX.pdf">prying</a> details out of the CFTC on their meetings with disgraced FTX CEO Sam Bankman-Fried, it’s time to link arms.&nbsp;



Specifically, the pair want to know what was said between SBF and agency Chair Rostin Behnam, who reportedly messaged directly with the recently convicted crypto mogul.



Warren (perhaps rightfully) is <a href="https://blockworks.co/news/legislation-crypto-greatest-enemy">viewed as an enemy of crypto</a>. But digging into possible coziness between the US government and one of the industry’s most infamous scammers? Sounds good to me.&nbsp;



— Michael McSweeney



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Empire Newsletter: Uniswap’s SEC woes drag DeFi below CeFi

Andreessen Horowitz raised $7.2 billion, co-founder Ben Horowitz disclosed in a new blog post on Tuesday.&nbsp;



The funds were raised for five of their “venture strategies” including American Dynamism, Games, Apps, Infrastructure and Growth. The largest raise was for growth, coming in at $3.75 billion. Games and American Dynamism each raised $600 million.



While it’s not clear how the freshly raised funds will be used, the firm’s Games venture has previously expressed interest in Web3 <a href="https://blockworks.co/tag/gaming">gaming</a>.



Read more: <a href="https://blockworks.co/news/a16z-2024-ideas-list">A16z’s crypto ideas list for 2024 spotlights AI, gaming</a>



“Games are also driving innovation across the entire consumer ecosystem, pioneering best-in-class mechanisms for user engagement, retention, and monetization, such as microtransactions, battle passes and Web3 tokens,” the venture’s page <a href="https://a16z.com/games-fund-one-building-the-future-of-games/">said</a>.&nbsp;



Crypto was not among the initial raises, though Bloomberg <a href="https://www.bloomberg.com/news/articles/2024-04-16/andreessen-horowitz-raises-7-2-billion-plans-more-for-2025">reported</a> that the firm is “still on track to raise additional funds” next year, citing people familiar.&nbsp;



“This marks an important milestone for us,” Horowitz <a href="https://a16z.com/new-funds-new-era/">said</a> in a blog post.&nbsp;



Last fall, Axios <a href="https://blockworks.co/news/a16z-venture-capital-crypto-fundraise">reported that the venture capital firm</a> was eyeing $3.4 billion for some of its funds.&nbsp;



The report from last October backs up Bloomberg’s reporting from earlier today, stating that the new investing vehicles could come in 2025.&nbsp;



<a href="https://blockworks.co/tag/a16z">A16z</a>, in late March, <a href="https://blockworks.co/news/crypto-startup-accelerators-growing">announced that it picked 25 start-ups</a> for its spring 2024 crypto startup accelerator.&nbsp;



The firms received a $500,000 investment in exchange for a16z receiving 7% equity.&nbsp;



Outside of its accelerator, the VC firm has been actively investing and leading rounds in the crypto world. It led a <a href="https://blockworks.co/news/espresso-shared-sequencers-funding-a16z">Series B funding round</a> for Espresso Systems.&nbsp;



“At its core, crypto is a technology movement that builds tools for better human cooperation at a larger scale — especially when the cooperating parties mutually distrust one another,” Ali Yahya, general partner at Andreessen Horowitz, <a href="https://a16zcrypto.com/posts/article/investing-in-espresso/">said</a> in a post at the time.



In February, a16z announced that it was <a href="https://blockworks.co/news/a16z-series-b-eigenlayer-investment">investing $100 million in Series B</a> funding for EigenLayer.



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A16z raises $7.2B

New television spots by crypto stalwarts Coinbase and Grayscale are set to air during NBA and NHL playoff games, the companies told Blockworks.



The commercials come around the highly anticipated bitcoin halving — slated to occur on April 19 or 20 — when per-block mining rewards are set to drop from 6.25 BTC to 3.125 BTC.&nbsp;&nbsp;



The Coinbase commercial, posted on X Monday, shows a spotlighted motorbike in a warehouse-type setting apparently used for pizza deliveries.&nbsp;&nbsp;



“Over time, your money gets you less,” a voice states. “Does bitcoin?”&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">Food for thought: What if money was designed to get you more over time, not less?<a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> <a href="https://t.co/z8eHF8JltQ">pic.twitter.com/z8eHF8JltQ</a>&mdash; Coinbase 🛡️ (@coinbase) <a href="https://twitter.com/coinbase/status/1779902729860591745?ref_src=twsrc%5Etfw">April 15, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The commercial shows how much pizza a person could have bought with one bitcoin in 2012, as one box appears on the back of the bike. A stack of boxes is added to show how much 1 BTC was worth in 2016.&nbsp;



Read more: <a href="https://blockworks.co/news/bitcoin-halving-different-institutions-investors">This Bitcoin halving will be different — the institutions are here</a>



By 2020, the flood of boxes knocks over the bike. Cardboard rains down further to quantify the 2024 value of a bitcoin in pizza terms.&nbsp;



“Roughly every four years, the future supply of bitcoin is reduced,” the spot states. “So historically, you get more. Not less.”&nbsp;&nbsp;



The ad is set to start airing Wednesday on TNT, ESPN and ABC during NBA playoff games, a <a href="https://blockworks.co/tag/coinbase">Coinbase</a> spokesperson told Blockworks. It will run through April 22.&nbsp;



Grayscale Investments’ ad, published to YouTube on Monday, touts the company’s standing as the world’s largest crypto asset manager. The firm’s Bitcoin Trust ETF (<a href="https://blockworks.co/tag/gbtc">GBTC</a>) holds roughly $20 billion in assets under management <a href="https://blockworks.co/news/gbtc-net-outflows-etf">despite consistent net outflows</a> in recent months.&nbsp;&nbsp;&nbsp;



“Sometimes investing feels like you’re going at it alone, especially when it comes to adding crypto to your portfolio,” the ad states as a man tries to row a racing boat and hang a painting by himself. “But it doesn’t have to be that way.”



<iframe loading="lazy" width="560" height="315" src="https://www.youtube.com/embed/OLcEYi7Ov4M?si=RgylABhg930iTG44" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" referrerpolicy="strict-origin-when-cross-origin" allowfullscreen></iframe>







It ends with the tagline: “Crypto investing begins here.”



In addition to appearing online, the <a href="https://blockworks.co/tag/grayscale">Grayscale</a> spot will air on CNBC, CNN, Golf Network, News Nation and NHL Network, a spokesperson told Blockworks — including during the NHL playoffs.



The upcoming crypto commercials during popular sporting events come after companies in the segment opted not to advertise during the Super Bowl in February.



Read more: <a href="https://blockworks.co/news/crypto-firms-super-bowl-advertising">Crypto players skip Super Bowl ads, plot other marketing opportunities</a>



Coinbase is not new to getting out its message during the NBA playoffs, launching a <a href="https://twitter.com/coinbase/status/1648043528797278215">campaign</a> focused on updating the financial system for last year’s postseason games.&nbsp;



The crypto exchange was one of the crypto companies to advertise during the 2022 Super Bowl. It more recently ran a television spot in February featuring a sad Abraham Lincoln on a penny, and the tagline: “Money is happier when it’s digital.”



Grayscale ads have <a href="https://twitter.com/Grayscale/status/1773741995087053057">appeared</a> in various <a href="https://blockworks.co/news/crypto-must-advertise-airports">airports and train stations</a> for years.



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Coinbase and Grayscale unveil new TV spots in time for bitcoin halving 

Macauley Peterson

Crypto exchange OKX released the public mainnet of its zkEVM rollup, X Layer, late Monday.



This new platform integrates with the OKX Exchange and OKX Web3 Wallet, enabling users to bridge assets easily, similar to Coinbase’s Base optimistic rollup and Bybit’s Mantle Network spin off.



The major difference is X Layer’s use of the Polygon zkEVM CDK, which has been live on testnet since November.



Read more: <a href="https://blockworks.co/news/okx-launching-l2-polygon">Centralized exchange OKX launches decentralized L2 with Polygon CDK</a>



This makes it part of the so-called “<a href="https://blockworks.co/podcast/lightspeed/e14b89fa-e5f0-11ee-94eb-d754c5abecb8">Aggregation Layer</a>” (or AggLayer), Polygon’s bid to address UX-pain points like liquidity fragmentation among Ethereum layer-2 networks, Polygon CEO Marc Boiron said.



The platform is expected to quickly host a wide array of dapps, including well-known DeFi offerings like Curve and QuickSwap, <a href="https://www.okx.com/learn/x-layer-mainnet">according</a> to a blog post by Chief Marketing Officer Haider Rafique, published Tuesday.



“The impressive roster of talented developers who have already started to build on X Layer is a testament to the potential of the network,” Boiron said.



The AggLayer currently consists of the Polygon zkEVM and Astar Network, but asset transfers between them are not yet available, an <a href="https://blockworks.co/tag/okx">OKX</a> spokesperson told Blockworks.



X Layer cuts down on transaction fees by using an alternative to Ethereum for data availability (DA), technically making it a validium rollup, similar to Polygon’s plans for <a href="https://blockworks.co/news/polygon-pos-to-validium">upgrading its own PoS chain</a>.



Read more: <a href="https://blockworks.co/news/layer-2-secured-by-ethereum">So your layer-2 is ‘secured by Ethereum’ — what does that mean?</a>



The exchange’s token <a href="https://blockworks.co/price/okb">OKB</a> serves as a gas token, so the chain is tailor-made for users branching out from the exchange experience to Web3. Otherwise, using the chain requires bridging OKB from another chain, like Ethereum. An OKX spokesperson told Blockworks that an OKB faucet was not currently available on mainnet.



<a href="https://blockworks.co/news/polygon-zkevm-post-mortem">Polygon’s zkEVM</a> uses ETH, as do most rollups, but does not yet make use of <a href="https://blockworks.co/news/ethereum-improvement-proposal-4844">Ethereum’s blob space</a> created following the <a href="https://blockworks.co/news/ethereum-dencun-upgrade-mainnet">recent Dencun upgrade</a>. So it will be a few weeks before Polygon’s own chain sees the benefit of cheaper alternatives to Ethereum call data.



Crypto.com also has a zkEVM-based rollup in development — Cronos Chain — that uses rival zkSync’s rollup tech stack.



Read more: <a href="https://blockworks.co/news/ethereum-rollups-using-zkstack">Cronos broadens scaling roadmap from Cosmos to Ethereum</a>



Looking ahead, X Layer aims to enhance wallet services, improve transaction speeds and provide comprehensive support and documentation for developers, Rafique wrote.



OKX has increasingly taken an “ecosystem” approach, including the launch of its own Web3 wallet that competes with MetaMask.



The exchange is a contributor to the Polygon CDK and plans to “provide an advanced tech-stack for builders in collaboration with Polygon Labs, according to Rafique.



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OKX turns on its L2 mainnet, joining the exchange chain club

Cryptocurrencies extended their decline Tuesday while stocks posted a modest rebound following Monday’s stronger-than-expected retail sales data.&nbsp;



Bitcoin and ether slid around 3% each Tuesday, erasing Monday’s slight gains. Bitcoin hovered around $62,400 at time of publication. The largest cryptocurrency looks poised to enter its next halving — expected to happen late this Friday — in the red.&nbsp;



While some traders are betting on the halving being bitcoin’s next catalyst for a run, researchers warn that the event is likely already priced in.&nbsp;



“The halving itself is already known to all market participants, so something like a decrease in issuance that’s already well-known theoretically shouldn’t impact the market at all,” Michael Zhao, researcher at Grayscale, said.&nbsp;



Equities on Tuesday inched into the green. The S&amp;P 500 and Nasdaq Composites gained about 0.1% by mid-way through the trading session.&nbsp;



US retail sales in March increased 0.7%, according to data released by the Commerce Department Monday. Analysts had expected a 0.4% rise. The report, coupled with last week’s hotter-than-expected inflation data, has traders skeptical that the Federal Reserve will cut interest rates before this summer.&nbsp;



A healthy consumer market, as good as it may seem, is not boding well for the interest rate cutting schedule. CME futures <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html">data</a> show a 0.4% chance of a rate cut in May and a 19% chance central bankers will slash rates in June.&nbsp;



“More recent data show solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2% inflation goal,” Fed Chairman Jerome Powell said Tuesday during a panel discussion at the Washington Forum on the Canadian Economy.&nbsp;



Rates are going to have to stay higher for longer, he added, confirming the widespread market sentiment.&nbsp;



“Fed Expectations has hopes for a June rate cut dashed by the hot CPI report and now the market must deal with the possibility of just two — or even fewer — rate cuts in 2024,” Tom Essaye, founder of Sevens Report Research, said. “Remember the market started the year expecting seven cuts.”



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Cryptos slip as Powell doubles-down on delaying rate cuts

Jeff Albus

One key driver behind Solana’s current congestion issues is giving the network a break.



Hardhat Chad, the pseudonymous creator of the Ore project, has <a href="https://x.com/HardhatChad/status/1780249831207837726">announced</a> the project will suspend all mining activities, effective immediately. This decision comes just weeks after Ore&#8217;s launch, amid growing pains for the Solana network that have included severe congestion issues and network instability.



Ore’s price more than <a href="https://www.coingecko.com/en/coins/ore">tripled</a> on news that the token’s supply would be paused, from around $93 before the announcement to over $300 shortly after, before drawing down to around $215, according to CoinGecko. Solana extended its bearish week even further, falling roughly from $131 to $127.



Ore is a blockchain-based project that implemented a proof-of-work (PoW) token distribution mechanism on the Solana network to explore a possibly more engaging and equitable way of distributing cryptocurrency.



Since Ore began trading earlier this month, the network’s diehards have flocked to what some <a href="https://x.com/odai_0x/status/1776079833484640715">dubbed</a> Bitcoin on Solana.&nbsp;



Bitcoin uses a PoW mechanism to distribute new coins and validate transactions. While secure, this system has been known to result in high energy consumption and slow transaction times.



The Solana blockchain, which has high throughput and low transaction costs, operates differently. It uses a proof-of-history (PoH) consensus combined with proof-of-stake (PoS), which significantly speeds up transactions and reduces costs.



Ore was introduced as an experiment to explore how proof-of-work could be implemented on Solana as a fun and fair token distribution mechanism. It aimed to merge the security and distribution model of PoW with Solana&#8217;s high-speed transaction capabilities.



Shortly after launch, Ore became the most active program on Solana by transaction count, according to the project&#8217;s creator.&nbsp;



Amid the deluge of transactions, as many as 75% of non-vote Solana transactions were not going through in early April, according to a Dune Analytics <a href="https://dune.com/scarn_eth/solana-tx-fail-rate">dashboard</a>. That figure is closer to 60% now.



While colloquially referred to as “failed” transactions, Solana’s <a href="https://solana.com/docs/core/transactions/retry">problem</a> is actually that the network is failing to schedule some transactions effectively. That means they’re dropped from the network before ever being included in a block. Regardless, to the end user, a frustrating fraction of on-chain actions are failing to land.&nbsp;



Ore highlighted how Solana’s low fees can actually work against the network when the transaction cost isn’t high enough to discourage spam.&nbsp;



Read more: <a href="https://blockworks.co/news/solana-network-congestion-transaction-volume">Solana’s cheap fees are turning out to be a curse — for now</a>



This realization has led to the current pause in Ore mining activities, allowing Hardhat Chad and their team to redesign the Ore contract for a Version 2 (v2). The next iteration aims to optimize the existing system, address inefficiencies that gave some miners an asymmetric advantage, and introduce structural incentives for holding the token, which were previously lacking.



“Welcome back, Solana,” one industry watcher <a href="https://x.com/AuronnBE/status/1780260014034153735">wrote</a> on X.&nbsp;



As Solana continues to deploy patches like v1.17.31 to improve performance and manage congestion, Ore&#8217;s v2 is being developed to better align with these network upgrades. All existing Ore tokens will be upgradable one-for-one into the new v2 token, ensuring fairness and continuity for current participants.



The mining halt is only temporary, as Ore hopes to bring its PoW concept back to Solana under more favorable conditions.



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Solana price falls further as Ore suspends mining on the network

Zack Shapiro

The Securities and Exchange Commission is investigating whether the Ethereum Foundation’s sale of ETH since the September 2022 “Merge” constitutes an unregistered securities offering in violation of US law, according to <a href="https://fortune.com/crypto/2024/03/20/sec-gary-gensler-ethereum-security-commodity-crypto-foundation/">Fortune</a>.



If the reports are true, then this investigation — just ahead of the SEC’s May deadline for a decision on an Ethereum spot ETF (more on that later) — raises the question: Did Ethereum’s switch to proof-of-stake transform it into a security?&nbsp;



The short answer is “no.”&nbsp;



The slightly longer answer is “still probably no.”



ETH tokens are not, in and of themselves, “securities” in the way that stocks or bonds are. They do not confer legal ownership of any business entity or contractual rights to any kind of payments — they are just code in a decentralized database.&nbsp;



When we talk about ETH “being a security,” we are instead actually asking whether the offer and sale of ETH tokens (in a particular context, between a particular buyer and seller) constitutes an “investment contract” under the dreaded Howey test. Under the Howey test, the offer and sale of an asset like ETH constitutes an investment contract if (1) someone invested money, (2) in a “common enterprise,” (3) in the expectation of profit and (4) where that expectation is based on the “essential managerial efforts of particular others.” 



The four Howey “prongs” have already been discussed and debated to death in the crypto space, so I’ll avoid beating a dead horse here. But if you look closely at the language from Howey, I think two things quickly become apparent about the sale of ETH tokens over time:



First, the sale of pre-mined ETH tokens to investors in Ethereum’s 2014 ICO sure looks a lot like an “investment contract.” ICO participants invested money (BTC) in order to receive their allocation of ETH (Howey prong #1). That BTC was pooled to fund a common effort led by Vitalik and the Ethereum Foundation to develop the Ethereum blockchain and produce the ETH tokens (Howey prong #2). Given that the Ethereum blockchain “pre-launch” at the time of the ICO, the only plausible motivation to take part in the ICO was to make money on the price appreciation of ETH (Howey prong #3). And, at the time of the ICO, if Ethereum was going to succeed as a protocol and ETH was going to succeed as an asset, Vitalik and his developers were going to have to roll up their sleeves and put in some good old “managerial efforts” to make the tokens worth anything (Howey prong #4).



Had the SEC brought suit around the time of the Ethereum ICO, they would have almost certainly won in court, and that may well have been the end of ETH.&nbsp;



However, the SEC didn’t bring suit, and the statute of limitations for such a claim (typically five years) would have run out in 2019. And importantly, the Ethereum ecosystem has evolved in ways since its ICO that make current sales of ETH tokens look less like an investment contract than they once did.&nbsp;



For one thing, the proliferation of applications (think DeFi and NFTs) utilizing ETH for “gas” provides a &#8220;consumptive utility&#8221; for ETH tokens that challenges the notion that current-day purchases of ETH are solely, or even mainly, based on profit expectation.&nbsp;



Even more important, however, is the so-called “<a href="https://www.sec.gov/news/speech/speech-hinman-061418">Hinman speech</a>” delivered in 2018 by Bill Hinman, then the director of corporation finance at the SEC, where he proposed that a digital asset’s classification under Howey could evolve over time.&nbsp;



According to Hinman’s logic — to the extent that Ethereum’s success no longer hinges on the efforts of a particular entity, like Vitalik or the Ethereum Foundation — the sale of ETH tokens would no longer fulfill the requirement of the final Howey prong that there be “particular others” upon whose efforts a buyer would rely for their profits. 



Read more from our opinion section: <a href="https://blockworks.co/news/staking-eth-no-security">Staking or not, ETH is no security</a>



Therefore, regardless of the legally dubious nature of the ICO, the Ethereum network (at least from 2018 onwards) has become “sufficiently decentralized.” This means that its native token constitutes a digital commodity like bitcoin, rather than an investment contract, subject to SEC jurisdiction.



Since the Hinman speech, the securities law status of ETH has been at a bit of a stalemate. The SEC has never explicitly endorsed the notion that ETH (even pre-merge) is a digital commodity — which they readily concede with regard to bitcoin. And Gary Gensler regularly<a href="https://www.youtube.com/watch?v=aIcNGfF8FDA"> ties himself in knots</a> before Congress trying to evade questions about his view on ETH’s current legal status.&nbsp;



But the fact remains that (at least until now) the SEC has never brought an action specifically alleging that primary or secondary sales of ETH constitute investment contracts under Howey (like they did with over a dozen other tokens in the Coinbase, Binance and Kraken lawsuits). The SEC even went as far as to approve the listing of ETFs based on ETH futures contracts that trade on the CME, which would be hard to understand if the Commission felt that ETH tokens traded as unregistered securities.



But what about Ethereum’s migration to proof-of-stake? Does the fact that ETH tokens can be staked for “yield” change the legal situation and turn either (A) current-day sales of ETH, or (B) the act of staking ETH into securities offerings under Howey?&nbsp;



In my opinion (and I spend an unhealthy amount of time thinking about crypto securities law), no.



With regard to present-day sales of ETH tokens — whether directly from the Ethereum Foundation or on the secondary market — I don’t think ETH’s staking functionality makes much of a difference under Howey. That is, the ability to stake does not make ETH tokens any less useful for individuals who might buy them for their consumptive utility (i.e. gas fees).&nbsp;



And while the Ethereum Foundation does indeed still hold a large supply of ETH tokens, there is no reason to think that the introduction of staking makes the foundation’s “managerial efforts” “essential” to the financial success of ETH in some way that was not the case at the time of the 2018 Hinman speech.



The question of whether the act of staking ETH in order to receive “yield” in the form of staking rewards constitutes an investment contract under Howey is more nuanced — but properly understood, the answer should still be no.&nbsp;



Read more from our opinion section:&nbsp;<a href="https://blockworks.co/news/ether-commodity-or-not" target="_blank" rel="noreferrer noopener">Ether is the Schrödinger’s cat of crypto</a>



When you run a validator node and stake 32 ETH tokens in exchange for rewards, what you are actually doing is providing a service to the Ethereum network and getting paid for that service. You only get the reward if you honestly validate blocks, and you stand to lose your stake to “slashing” if you attempt to validate dishonestly.&nbsp;



This is very different from the type of passive “yield” you might expect to receive from holding a bond or a dividend-paying stock or real estate asset (which rewards ownership and not activity). Unlike with these traditional financial instruments, you are not relying on “managerial efforts” of other people in order to profit when you stake ETH directly, but rather on your own skill and honestly as a validator.



This question becomes trickier, however, when we move from direct proof-of-stake validation to “staking services” such as those run by exchanges like Coinbase and collaborative staking protocols like Lido and Rocketpool.&nbsp;



At one end of the extreme, you could see an argument for how custodial staking services could look quite security-like under Howey (given how reliant depositors would be on the staking service provider’s efforts in order to earn yield).&nbsp;



At the other end of the spectrum, you could imagine a purely on-chain tool that allowed users to jointly stake their ETH in collective, automated, validator nodes with clearly defined behavior looking much more like direct staking than an investment contract.&nbsp;



Where the specific services by Coinbase, Lido and Rocketpool fall on this continuum is very much an open legal question — and one that in Coinbase’s case is being actively litigated in federal court in the Southern District of New York.&nbsp;



But none of this makes ETH itself, even when being used for staking purposes, an investment contract and therefore none of this seems to justify the SEC’s new investigation.



Why, then, might the SEC be pursuing this type of weak claim about Ethereum?&nbsp;



Observing the success of the Bitcoin ETF — and the SEC&#8217;s dissatisfaction with its launch — suggests that the investigation into Ethereum might be a pretext to deny the upcoming spot ETH ETF application.&nbsp;



Moreover, acknowledging Ethereum’s transition to a commodity despite its seemingly illegal ICO genesis could concede a legal strategy meant to apply to other token projects that the SEC believes aiming to circumvent securities classification (in other words, creating a loophole).&nbsp;



The SEC’s actions could be seen as a strategic move to maintain regulatory leverage over the crypto market, rather than a clear-cut determination of Ethereum’s status as a security.



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


<div class="wp-block-post-author-biography">Zack Shapiro is the Managing Partner at Rains and leads the law practice. Previously, he was co-founder and general counsel of BZR, a startup backed by Founders Fund, Greycroft, and Abstract Ventures. Zack is a graduate of Williams College and Yale Law School, and started his legal career clerking in the federal courts for the S.D.N.Y. and the 2nd Circuit, and at Davis Polk &amp; Wardwell. Zack serves in various advisory roles in the crypto industry, including as a member of the Pleb Lab Accelerator advisory board, and as a Legal Fellow at the Bitcoin Policy Institute.
</div>


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No, ETH isn’t suddenly a security now

It appears ever more likely that fund issuers will launch crypto ETFs in Hong Kong very soon. This move could catalyze acceptance of such funds elsewhere, with some speculating that other regulators in Asia could be next to follow suit.



In the US, the Securities and Exchange Commission had held out on approving spot bitcoin ETFs for years, restricting investors from engaging with cryptocurrencies through regulated financial avenues. This barrier prevented the broader financial adoption and accessibility of blockchain assets.



That all changed in January when the SEC <a href="https://blockworks.co/news/sec-approves-bitcoin-etf">approved 10 spot bitcoin ETFs for trading</a> on US exchanges. This approval not only marked a significant shift in policy but also led to approximately $12.5 billion in net inflows to these funds, demonstrating a robust market appetite.



Fast forward just weeks after the US bitcoin ETF approvals, to when the <a href="https://blockworks.co/news/london-stock-exchange-crypto-etn-proposals">United Kingdom’s Financial Conduct Authority said it would support</a> “recognized investment exchanges” listing physically backed bitcoin and ether exchange traded notes (ETNs) for professional investors.



The London Stock Exchange indicated that such listings <a href="https://blockworks.co/news/london-stock-exchange-crypto-exchange-traded-notes">could be expected by the end of May</a>.



Now in <a href="https://blockworks.co/tag/hong-kong">Hong Kong</a>, fund issuers have indicated in recent days that they are looking to launch spot bitcoin and ether funds soon.



Read more: <a href="https://blockworks.co/news/hong-kong-reportedly-looks-to-approve-crypto-etfs">Hong Kong could green light spot bitcoin and ether ETFs next week: Report</a>



HashKey Capital and Bosera International noted in a Monday <a href="https://group.hashkey.com/en/newsroom/bosera-hashkey-co-launch-spot-etfs">post</a> they had gained approval from Hong Kong’s Securities and Futures Commission to offer crypto-related asset management services.&nbsp;



A HashKey spokesperson declined to comment further.



A representative for Hong kong-based China Asset Management said the firm is planning to launch a spot bitcoin ETF and a spot ether ETF.&nbsp;&nbsp;



Still, issuers do not appear to have official approval to launch such funds. An SFC spokesperson did not immediately return a request for comment.&nbsp;



“Regarding the approval progress, we are currently not in a position to provide comment, as it is the decision of SFC,” the China Asset Management spokesperson told Blockworks in an email.&nbsp;



<a href="https://blockworks.co/news/uk-crypto-regulation-panel-das">Developments in the UK</a> and Hong Kong “reiterate the global ripple effect of the spot ETF approvals in the US,” according to Tim Bevan, CEO at crypto ETP issuer ETC Group.



Michael Silberberg, head of investor relations at Alt Tab Capital, added in a statement that the Hong Kong move was likely to attract more institutional investors. He believes that this would result in more liquidity and better price discovery.



“As other jurisdictions observe Hong Kong’s approach, it will likely encourage similar regulatory frameworks worldwide, further legitimizing bitcoin as an investable asset class and driving more growth in BTC and across the market,” Silberberg said.



<h2 class="wp-block-heading">Who’s next to approve such products?</h2>



While the US became the latest to approve spot <a href="https://blockworks.co/tag/bitcoin-etf">bitcoin ETFs</a>, other countries had beat them to it.



Canadian fund group Purpose Investments launched its spot bitcoin ETF on the Toronto Stock Exchange in February 2021 — the world’s first bitcoin ETF backed by physically settled bitcoin.



Read more: <a href="https://blockworks.co/news/bitcoin-etf-fee-level">Purpose Investments, Grayscale defend their higher fees as outflows continue</a>



QR Asset Management <a href="https://blockworks.co/brazil-bitcoin-etf-follows-similar-launches-in-canada">launched Latin America’s first spot bitcoin ETF</a> in Brazil in June 2021.



<a href="https://blockworks.co/news/us-europe-spot-bitcoin-etf">Europe’s first spot bitcoin ETF</a> went live on Euronext Amsterdam last year, though crypto ETNs — debt instruments typically collateralized by the underlying exposure — had existed there for years prior. &nbsp;&nbsp;



Karim Saber, a research associate at crypto ETP issuer 21Shares, said Asia appears poised to take the lead in approving new spot bitcoin ETFs given higher-than-average crypto adoption rates in countries like South Korea, Japan and Singapore.



Read more: <a href="https://blockworks.co/news/apac-web3-2023">The future of Web3 lies in the Asia-Pacific</a>



“The victory of the bitcoin-friendly South Korean opposition party in April&#8217;s election enhances the likelihood of the country approving BTC spot ETFs in the near future,” he told Blockworks.&nbsp;



The winning party had pledged to prioritize offering investors access to such products, Bloomberg <a href="https://www.bloomberg.com/news/articles/2024-04-05/south-korean-party-pledges-access-to-us-bitcoin-etfs-in-race-for-votes">reported</a> earlier this month.&nbsp;



While South Korea’s recent political shift could lead to regulators approving a bitcoin ETF as soon as this year, Saber noted, Japan and Singapore might not be far behind.&nbsp;



The Government Pension Investment Fund (GPIF) of Japan said last month it was <a href="https://blockworks.co/news/japan-pension-fund-considers-bitcoin">considering investing in “illiquidity assets” like bitcoin</a>.



That came about a month after the Japanese government advanced a proposal that would allow investment limited partnerships to acquire and hold crypto assets.



Read more: <a href="https://blockworks.co/news/japan-crypto-policy-step-forward">Japan’s crypto policy takes a positive step forward</a>



A March <a href="https://www.independentreserve.com/blog/wp-content/uploads/2024/03/Independent-Reserve-Cryptocurrency-Index-Singapore-2024.pdf">survey</a> of Singaporeans by Independent Reserve found that one-third of respondents would consider investing in an overseas spot bitcoin ETF.



While the Monetary Authority of Singapore has expressed <a href="https://www.zaobao.com.sg/finance/singapore/story20240117-1462706">concerns</a> about retail access to spot ETFs, crypto adoption is evolving in the country.&nbsp;



Singapore app Grab, for example, allowed users to start making payments in BTC, ETH and stablecoins last month. The move highlights “the growing integration of cryptocurrencies into mainstream commerce,” Saber said.



“Therefore, we anticipate Singapore and Japan to increasingly pursue regulatory approval following South Korea,” he added. “The approval in Hong Kong could catalyze discussions this year as Asian countries vie for prominence as the next financial center for innovation.”



Bevan said he expects Japan and South Korea could approve such products in the next six to 12 months — noting that while timelines are hard to predict, “they are all playing catch-up with the US.”



<h2 class="wp-block-heading">Progress in the UK and Australia</h2>



The <a href="https://blockworks.co/tag/fca">FCA</a>’s change of stance related to United Kingdom-listed crypto ETNs currently applies to products accessible only to professional investors.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;



But the regulator’s cautious “phased approach” is likely a step toward retail access once it assesses the products’ impact with that “more informed participant base,” Mandy Chiu, head of financial product development at 21.co, previously told Blockworks.



Read more: <a href="https://blockworks.co/news/bitcoin-etfs-in-uk">After US bitcoin ETFs, the UK fights for retail to have the same freedom</a>



Over in Australia, additional spot bitcoin ETFs could soon be available as well.



The Global X 21Shares Bitcoin ETF (EBTC) launched on Cboe Australia in May 2022. The fund provides holders an interest in bitcoin held in cold storage by Coinbase.



Asset manager Monochrome last year <a href="https://blockworks.co/news/australian-spot-bitcoin-etf">applied for Australia’s first fully-licensed spot bitcoin ETF</a> under new regulatory guidelines. Monochrome CEO Jeff Yew previously told Blockworks that the proposed fund would be uniquely authorized under the country’s “crypto asset” licensing category, which allows the fund to hold bitcoin directly on the fund level.&nbsp;



It is unclear whether this distinction will attract investors to such a fund. The Global X fund has $93 million in assets under management after about two months on the market — a far cry from several of the much-younger US spot bitcoin ETFs.&nbsp;



“Monochrome expects to receive a positive response for the Monochrome Bitcoin ETF (IBTC) within a matter of weeks, not months,” Yew said.



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After crypto ETF movement in Hong Kong, other Asia regulators could act 

Binance.US tapped the New York Federal Reserve’s former compliance chief to its board of directors. 



Martin Grant, who served as the Fed’s compliance and ethics officer until 2022, will help “oversee financial reporting processes and internal controls,” <a href="https://blog.binance.us/martin-grant-joins-board/">according</a> to a press release from Binance US.



“The American digital asset industry is at an inflection point, and I am excited to help guide the future of one of the country’s most influential and customer-centric crypto platforms,” Grant said.



Grant’s addition “reflects the strength of our business and demonstrates our commitment to maintaining the highest standards of compliance and integrity. We look forward to benefiting from his expertise and counsel as we continue to navigate the current regulatory environment and position Binance.US for long-term growth and success,” <a href="https://blockworks.co/tag/binance">Binance</a> US interim CEO Norman Reed added.



Read more: <a href="https://blockworks.co/news/binance-settlement-message-to-crypto-industry">Yellen: Historic Binance settlement “sends message” to crypto industry</a>



The Securities and Exchange Commission targeted both Binance US and Binance in a lawsuit <a href="https://blockworks.co/news/binance-changpeng-zhao-face-sec-charges">filed last June</a>. The SEC alleges that the two — which are separate entities — offered and sold unregistered securities and also failed to register as an exchange.&nbsp;



Last year, the Department of Justice also announced a multi-billion dollar settlement with the crypto exchange, and former CEO <a href="https://blockworks.co/tag/changpeng-zhao">Changpeng Zhao</a> was <a href="https://blockworks.co/news/changpeng-zhao-binance-steps-down">ousted as part of the terms</a>.&nbsp;



Another part of the settlement requires Binance to allow some teams from the Department of Justice to review Binance’s activities. It will also be overseen by the Financial Crimes Enforcement Network. 



Binance’s Chief Compliance Officer Noah Perlman said on a panel last week that the settlement is an “opportunity” for Binance to “uplift the [compliance program],” the Wall Street Journal <a href="https://www.wsj.com/articles/top-crypto-exchanges-look-to-move-beyond-settlements-with-u-s-regulators-fddbeb29">reported</a>.



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Former NY Fed compliance chief joins Binance US board

The Bitcoin halving is looming, as the quadrennial event is expected to take place at the end of the week.&nbsp;



The halving, which marks the fourth such event in bitcoin’s history, will knock rewards down to 3.125 BTC per block from 6.25.&nbsp;



However, a lot has changed since the last time the rewards were halved in 2020 from the launch of the spot bitcoin ETFs to bitcoin notching new all-time highs just last month.



BitGo CEO Mike Belshe sat down with Blockworks ahead of the <a href="https://blockworks.co/tag/bitcoin-halving">halving</a> to discuss the overall market environment, bitcoin and the launch of the ETFs.&nbsp;



Read more: <a href="https://blockworks.co/news/etfs-helped-legitimize-bitcoin-halving-cme">ETFs helped ‘legitimize’ bitcoin ahead of halving: Q&amp;A</a>



Keep reading for excerpts from Blockworks&#8217; interview with Belshe.



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



Blockworks: How is <a href="https://blockworks.co/tag/bitgo">BitGo</a> approaching the space post-bitcoin ETFs?



Mike Belshe: What we have found, as an industry, in the last year and a half to two and a half years, is that there&#8217;s a political thing going on that is influencing the interpretation of laws and regulations. And because of that, the traditional players are largely locked out. But all of a sudden, they&#8217;ve got the ETF vehicle, which has been approved. It&#8217;s the one shining light that they can definitely use without feeling like they&#8217;re putting their entire businesses at risk. It allows them to participate in Bitcoin, to provide access to their own clients for Bitcoin, and yet not necessarily have to take all of the exposures that they would have to take if they tried to do what BitGo does. So instead, they lean on BitGo to make that happen.



Blockworks: You guys have direct exposure to ETFs, correct?



Belshe: So we&#8217;re handling two of them so far. I think there are many more that you&#8217;ll be hearing about very soon. We provide all the regulatory compliance that [bitcoin ETF issuers] would need to expect. We’re regulated in three different states as a Trust Company. We&#8217;ve got South Dakota, New York and Wyoming now. And then, of course, we have money transmission licenses and other things that we do so we&#8217;re a very easy player for anybody that&#8217;s looking for that secure storage to work with.



Blockworks: Can you give some insight into the conversations that you&#8217;re having with these institutions following the <a href="https://blockworks.co/news/sec-approves-bitcoin-etf">spot bitcoin ETF launches</a>?



Belshe: The business this year is just growing so fast. I actually think the institutions aren&#8217;t as much in as you would think. We have our existing institutional clients, and they&#8217;re all going to retail on their own — and that retail demand has been growing.



Some people are asking, ‘Where is this ETF demand coming from?’ And I think it&#8217;s still mostly retail demand — that is, retail clients going through Schwab, through TD Ameritrade. They’re going through their brokers and just now getting access to this asset class, which previously was just too hard to touch.



Read more: <a href="https://blockworks.co/news/2024-bitcoin-halving-new-era">The 2024 halving could usher in a new era for Bitcoin</a>



Now they just log in and buy. This is actually very good news for the industry, because there&#8217;s an endless amount of institutional demand, which we know is coming. So institutions are not yet in, and I believe they are coming, but the ETF was only approved in January…it&#8217;s not enough time for those evaluations to have been completed yet, which is why most of what we see so far is retail coming in. There&#8217;s some amount of the small hedge funds that are now coming in some amount of RAs can come in because they can make faster decisions and move quickly. And I think there&#8217;s a lot of headroom here for more demand.



Blockworks: We’ve heard similar things from Valkyrie, that some financial advisors, etc. are not quite ready to embrace the ETFs just yet, and that they need more time. Are you hearing similar rumblings?



Belshe: Some just need to see how bitcoin ETFs play out. The [Securities and Exchange Commission] was initially a no. Now they approved the products, but it’s not like these guys were like, ‘Great, the [bitcoin ETFs] are ready to go.’ A lot of them were on the sidelines, and now — even with the ETFs being launched — they need to see how it all shakes out.



Is it all going to go to BlackRock or to Fidelity, or heck, is Bitwise going to get some of this? Is it going to be really unstable? Is it going to get big really fast?



Read more: <a href="https://blockworks.co/news/bitcoin-halving-different-institutions-investors">This Bitcoin halving will be different — the institutions are here</a>



That&#8217;s all starting to shake out now. People are now looking at it and saying, ‘Yeah, this is a pretty robust ecosystem, the largest, fastest-growing ETF sector in the history of the market.’



Blockworks: Is this going to be a different halving than what we’ve seen before because of all the outside factors?



Belshe: I don&#8217;t tend to think about it in the short term. But long term, what is it really? Well, we have a distribution schedule for how new bitcoin [is] issued out into the world. That was put in motion all the way back in 2009. It hasn&#8217;t changed. That, by the way, is the first monetary policy in the history of humans that has been static for 15 years straight.



Humans can&#8217;t stop tinkering — the Fed changes things every quarter — and yet Bitcoin has managed to hold it steady by the exact same schedule that was put in place in 2009. It just shows the difference between what happens when you hand the rules over to the machines versus the emotions of people.



Read more: <a href="https://blockworks.co/news/bitcoin-halving-outlook-for-public-miners">Financial trouble for bitcoin miners: A look back, and ahead as the halving looms&nbsp;</a>



You could ask the question: Why does it work this way? And that gets more into how do you build a currency of value without just giving yourself all the tokens. There are other currencies out there, like XRP, where Ripple gives themselves all the money to begin with, and then they say, ‘Come buy my coin.’ Alright, maybe some people are gonna do that and they&#8217;ve been fairly successful. Ripple still holds a chunk of XRP to this day. But it&#8217;s a lot harder to trust that, because you&#8217;re so dependent on Ripple and good stewardship of XRP.



And I’m not trying to say they haven’t been good stewards. I think they&#8217;ve been reasonably good. But with Bitcoin, they didn’t want that.



So instead, Satoshi Nakamoto put together this thing. I think it builds trust, and this is going to be just another milestone in building trust. Bitcoin is the one asset that&#8217;s going to do exactly what it said it was going to do, and not falter from the original plan.



This interview was edited for brevity and clarity.&nbsp;



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