Bitcoin is the first distributed consensus-based, censorship-resistant, permissionless, peer-to-peer payment settlement network with a provably scarce, programmable, native currency. Bitcoin (BTC), the native asset of the Bitcoin blockchain, is the world's first digital currency without a central bank or administrator. The Bitcoin network is an emergent decentralized monetary institution that exists through the interplay between full nodes, miners, and developers. It is set by a social contract that is created and opted into by the users of the network and hardened through game theory and cryptography. Bitcoin is the first, oldest, and largest cryptocurrency in the world.

Bitcoin

Sebastian Sinclair

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



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



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



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



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



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



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



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



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



<h2>Future rate hikes?</h2>



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



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



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



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



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



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



<h2>Change of pace</h2>



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



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



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



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



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



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



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

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



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



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



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



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



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



The blurb reads:



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



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



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



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



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



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



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



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



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



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



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Pentagon, Mine Bitcoin To Stay Superpower: Space Force Major

Casey Wagner

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



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



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



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



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



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



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



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



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Why Binance May Have Been Worth Risk for US Institutions 

Bessie Liu

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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A New Synthetic Bitcoin Is Coming to Ethereum

Ben Strack

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



Blockworks: What about potential acquisition opportunities?



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



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



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



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



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



This interview was edited for clarity and brevity.



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

David Canellis

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



This brings about two problems:



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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

Lior Lamesh

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



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



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



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



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



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



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



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



<h2>Straddling the divide</h2>



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



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



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



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



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



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



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



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



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


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


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Crypto Custody Has a Problem and Only Banks Have a Solution

Shalini Nagarajan

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



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



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



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



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



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



<h2>‘A’ for effort Binance, but…</h2>



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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Binance Compliance Hires Didn’t Allay CFTC Investigators’ Concerns

John Lee Quigley

The Investor’s Guide to Bitcoin and Crypto Loans

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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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Why Are Bitcoin and Ether More Correlated Than Ever?

Ethereum scaling with zero-knowledge (zk) proof technology has rapidly moved from theory to functioning public mainnet, with dueling zero-knowledge Ethereum Virtual Machines (zkEVMs) from <a href="https://blockworks.co/news/zksyncs-evm-era-opens-to-the-public">Matter Labs</a> and <a href="https://blockworks.co/news/polygon-zkevm-live-on-ethereum">Polygon</a> launching in the past week.



Soon to follow will be ConsenSys, the Ethereum blockchain infrastructure company, which recently <a href="https://twitter.com/ConsenSys/status/1640643146240409600?s=20">deployed</a> its zkEVM onto an Ethereum testnet.



Zk rollups are considered a breakthrough in crypto technology, as zero-knowledge proofs allow information to be proven to be valid or invalid without revealing the information itself.



On Ethereum layer-2 rollups, this means that transactions can be batched and validated by Ethereum without revealing the specifics involved in the individual transactions on the Ethereum mainnet.&nbsp;



This type of technology can considerably lower transaction costs by compressing the data, making more efficient use of Ethereum blockspace.



<h2>How do zk rollups lower transaction fees?</h2>



Zk rollups built on Ethereum offload the computation and execution of smart contracts to a separate layer-2 blockchain built on top of the base layer.



This means that, rather than having the Ethereum mainnet validators process individual transactions, the rollup instead offloads that responsibility to a prover and verifier on the layer-2 network.



“Anyone can download the data and check if it is correct for some period of time,”&nbsp;<a href="https://www.blockworksresearch.com/">Blockworks Research</a> said.



Unlike Ethereum mainnet, where more users and more transactions lead to increased <a href="https://www.blockworksresearch.com/glossary#gas">gas</a> fees, <a href="https://ethereum.org/en/developers/docs/scaling/zk-rollups/">the costs</a> of writing data to mainnet from a zk rollup in fact decline as the number of users increases since the otherwise fixed cost is divided between all users whose transactions are in a batch, DeFi researcher who goes by the ​​pseudonym Ignas <a href="https://twitter.com/DefiIgnas/status/1641426707172425730">tweeted</a>.



&#8220;When there are fewer transactions the fixed cost is distributed among fewer users, leading to higher average gas fees per transaction. As transaction volume increases, the fixed cost gets spread out, and fees drop,&#8221; Ignas said.



Mikhail Komarov, founder of zk infrastructure developer =nil; Foundation, agrees, but with a caveat.



&#8220;In terms of L-1 transactions, this is true. But a user pays an L-2 fee, not an L-1 fee,&#8221; Komarov told Blockworks. &#8220;This means a rollup can charge some larger or smaller end-user fee with the only difference of using its own L-2 token for that.&#8221;



Current zk rollups, however, do not charge fees in a native token — if they have one — but instead use ether.



What exactly gets posted back to Ethereum mainnet depends on the specifics of the rollup implementation.



For instance, Polygon’s zkEVMs posts full transactions to mainnet, Bartek Kiepuszewski of L2Beat explained <a href="https://twitter.com/bkiepuszewski/status/1640728189109411841">on Twitter</a>, Tuesday. By contrast, both zkSync and StarkNet only submit changes in the state of the EVM that occur as a result of those transactions.&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">In contrast to other zkEVMs it posts full transactions (with signatures) to L1 calldata, not just state roots. <a href="https://twitter.com/zksync?ref_src=twsrc%5Etfw">@zksync</a> and <a href="https://twitter.com/Starknet?ref_src=twsrc%5Etfw">@Starknet</a> post only state diffs. Transactions are not compressed, expect L2 tx cost to be not the cheapest as a result /2&mdash; bartek.eth (@bkiepuszewski) <a href="https://twitter.com/bkiepuszewski/status/1640728189109411841?ref_src=twsrc%5Etfw">March 28, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“Right now, we have to differentiate between systems that are EVM-equivalent and EVM-compatible,” Kiepuszewski <a href="https://youtu.be/eveHo7ncHt4?t=653">said</a> at Devcon Bogota, in October 2022. “I think we’re going to see a very interesting competition between systems that try to emulate the EVM as close as possible and systems that will prefer to make sure that the proving is optimized for the particular VM — and in this category I would definitely put zkSync and StarkNet. The competition between these two approaches is will be very interesting to watch.”



Similar to how transactions on layer-1 cost a gas fee, posting data from layer-2 validity proofs also requires a fee. Currently, transactions are posted through ordinary Ethereum “<a href="https://www.quicknode.com/guides/ethereum-development/transactions/ethereum-transaction-calldata/">calldata</a>” in a transaction. But this will change under <a href="https://blockworks.co/podcast/0xresearch/ac87740a-b80f-11ed-b2e2-4b2bbafab32b">EIP-4844</a>, Blockworks research said.&nbsp;



“It will be posted to these things called blobs that will have a separate fee market to normal transactions making it cheaper,” Blockworks Research said.



EIP-4844, also known as Proto-Danksharding, will the part of the next major Ethereum upgrade<a href="https://blockworks.co/news/ethereum-devs-opt-for-withdrawals-in-march-and-nothing-else"> after Shanghai</a>, dubbed Cancun.



&#8220;I would say the only thing which can drive down data availability cost is a better compression (proof and circuits &#8216;quality&#8217;),&#8221; Komarov said. &#8220;The better the compression — the smaller the L-1 [data availability] charge.&#8221;



Ultimately, technological and hardware improvements will reduce the costs of data availability further and, over the long run, transaction fees on Ethereum layer-2s using zk proofs will continue to come down, Blockworks Research said.



Updated March 30, 2023 at 12:02 pm ET: Additional comments.



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Zero-knowledge Rollups Get Cheaper With Scale

The price of bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>) almost hit $29,200 on Thursday morning, reaching its highest point in more than nine months.



“Market structure is sound,” Anthony Rousseau, head of brokerage Solutions at TradeStation told Blockworks. 



Bitcoin last traded above $29,000 across late May and early June last year, per TradingView. BTC was hovering around $28,600 as of 8:45 am, ET.



“Prices do not represent the kind of doomsday scenario that widespread regulatory action seemingly could ignite in a structurally less-stable market.”



Since the start of the year, crypto has enjoyed a short-term trend which has stuck around, providing a convincing rationale for accumulation, Rousseau said.



James Lavish, managing partner at the Bitcoin Opportunity Fund, said the broader market had enjoyed a “risk-on day across the board.”



The broad S&amp;P 500 and Dow Jones indexes closed 1.4% and 1% higher, respectively, while tech-heavy Nasdaq Composite climbed 1.8%.



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe class="wp-embedded-content" sandbox="allow-scripts" security="restricted" title="Interactive or visual content" src="https://flo.uri.sh/visualisation/13253017/embed#?secret=ZBiVEzdW2G" data-secret="ZBiVEzdW2G" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div><figcaption class="wp-element-caption">Bitcoin still has some catching up to do</figcaption></figure>



&#8220;Investors seem to be positioning themselves and their books ahead of some crucial data this week, namely the GDP and PCE inflation data,” Lavish said.



If data comes in weaker than expected, it would give US Federal Reserve Chair Jerome Powell more evidence to pause further rate rises, or so the theory goes.



Still, a shift in the global liquidity tide has been net positive for assets like bitcoin, Rousseau added.



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Bitcoin Eyes Return To $30K After Hitting 9-Month High

Around $4 billion in deposits tied to Signature Bank’s crypto business are set to be returned next week amid growing scrutiny around the Federal Deposit Insurance Corporation (FDIC).



During a Financial Services hearing on Wednesday, FDIC chairman Martin Gruenberg fielded questions over his agency’s handling of the recent US banking crisis, including its takeovers of Signature and Silicon Valley Bank.



Pro-crypto Congressman Tom Emmer asked Gruenberg whether the FDIC plans to sell intellectual property tied to Signet, Signature’s blockchain-powered private money network utilized by major crypto firms such as Kraken.



“I believe that’s already been sold out of the bridge institution, Congressman,” Gruenberg responded. Emmer later rebuffed the chairman’s response in a tweet.



The FDIC and other US regulators moved to shut down Signature and Silicon Valley Bank earlier this month over concerns of risks to the US banking system, just days after Silvergate opted to shutter. 



All three serviced crypto clients in one way or another.



<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">And if not, why is our government controlling one of the few private sector 24/7 money rails that supported the digital economy?&mdash; Tom Emmer (@GOPMajorityWhip) <a href="https://twitter.com/GOPMajorityWhip/status/1641221687105536003?ref_src=twsrc%5Etfw">March 29, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<h2>Crypto insiders demand FDIC scrutiny</h2>



The FDIC <a href="https://www.fdic.gov/news/press-releases/2023/pr23023.html" target="_blank" rel="noreferrer noopener">sold</a> Silicon Valley Bank’s deposits to First Citizens Bank earlier this week.



Emmer pressed Gruenberg on his assertion that the sale included assets or liabilities tied to crypto-related firms.



“Gruenberg claims that all deposits from [Silicon Valley Bank] were assumed by First Citizens. But I am almost certain that&#8217;s not true,” Nic Carter, co-founder at venture capital firm Island Castle Ventures, <a href="https://twitter.com/nic__carter/status/1641183746660466688?s=20" target="_blank" rel="noreferrer noopener">tweeted</a>.



Emmer and the FDIC did not immediately respond to requests for comment.



Others took umbrage with the hearing’s apparent focus on Silicon Valley Bank, rather than the FDIC’s action against Signature.&nbsp;



Barney Frank, former House Financial Services Committee chair and Signature director, had <a href="https://fortune.com/2023/03/12/nyc-based-signature-bank-fails-closed-by-regulators-fdic-treasury/" target="_blank" rel="noreferrer noopener">previously</a> alluded to the bank’s solvency even as the FDIC took control.



Research unit Delphi Digital’s general counsel <a href="https://twitter.com/SH_Brennan/status/1640795386557153281?s=20" target="_blank" rel="noreferrer noopener">Sarah Brennan</a> tweeted: “Insane that there wasn’t a significant discussion on this. I thought this was a fact-finding hearing but was used for mostly grandstanding… business as usual.&#8221;



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FDIC Chair Grilled Over Crypto-friendly Bank Takeovers

Media giant Warner Music Group plans to lay off 4% of its global workforce, meaning 270 employees would lose their jobs, but positions related to Web3 could be retained.



CEO Robert Kyncl told employees it would reallocate resources towards “new tech initiatives,” and that the company will reduce discretionary spending, according to a memo seen by Variety.&nbsp;



The group is the third-largest label in the global music industry and represents some of the world’s best-known clients including Beyonce, Jay-Z, Ed Sheeran and Coldplay. Kyncl didn’t specify which divisions would be cutting jobs, but he said the move did not indicate a “blanket cost-cutting exercise.”



“Every decision has been made thoughtfully by our operators around the world, who considered the specific needs, skills, and priorities of each label, division, and territory, in order to set us up for long-term success,” he <a href="https://variety.com/2023/music/news/warner-music-to-lay-off-270-staffers-hard-choices-evolve-1235567703/" target="_blank" rel="noreferrer noopener">said</a>. Blockworks has reached out for comment.&nbsp;



Kyncl added that “new business models are constantly emerging,” creating a path for innovative opportunities. Warner Music would “likely” keep employees working in the group’s Web3 and AI initiatives, Decrypt reported.



Warner Music&#8217;s UK arm separately announced a string of <a href="https://www.wmg.com/news/warner-music-uk-announces-series-of-strategic-changes" target="_blank" rel="noreferrer noopener">strategic changes</a> on Wednesday. Among those updates, the brand said that London-based executive Sebastian Simone will “continue his innovative work in Web3 and the metaverse” as Vice President of Community.



Under Simone’s leadership, Warner Music announced the launch of a Web3 record label called “Probably A Label” in collaboration with TV chef Jeremy Fall in October. The label sold out a collection of 5,555 NFT access passes at launch in seven minutes, according to <a href="https://www.digitalmusicnews.com/2022/10/12/warner-records-imprint-probably-a-label-web3/" target="_blank" rel="noreferrer noopener">Digital Music News</a>.



Among other Web3 collaborations, Warner Music <a href="https://twitter.com/Blockworks_/status/1575509586496323585" target="_blank" rel="noreferrer noopener">partnered</a> with NFT marketplace OpenSea in September to expand engagement with artist fan communities. The company also <a href="https://blockworks.co/news/music-nfts-beat-the-bear" target="_blank" rel="noreferrer noopener">banded together</a> with Polygon and digital collectible marketplace LGND Music to connect with fans for curated experiences.



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Warner Music Web3 Moves Could Still Be in Play Despite Layoffs

South Korea and the US appear to be competing over the extradition of disgraced Terra founder Do Kwon, and his business associate Hon Chang-Joon is caught in the crossfire.



The extradition requests have been officially made, Reuters reported, about one week after their arrests. But it isn’t yet determined to which country he would eventually be extradited.&nbsp;



Montenegro’s justice minister Marko Kovac has said South Korea is seeking the extradition of both individuals, while the US is only after Kwon, according to <a href="https://abcnews.go.com/Business/wireStory/montenegro-south-korea-us-seek-extradition-kwon-98204343" target="_blank" rel="noreferrer noopener">ABC News</a>.



Both Kwon and Joon were arrested at Montenegro’s Podgorica airport last Friday for allegedly entering the country illegally and forging official documents. Authorities have <a href="https://www.reuters.com/technology/skorea-us-seeking-extradition-crypto-entrepreneur-do-kwon-montenegro-2023-03-29/" target="_blank" rel="noreferrer noopener">said</a> they were using fake Costa Rican passports in attempting to fly to Dubai.



The two were also carrying a set of Belgian passports, laptop computers and other devices in their baggage, per police. Both South Korea and the US are also expecting the computers to be handed over.&nbsp;



Shortly after arresting the Terra founder, prosecutors in New York <a href="https://blockworks.co/news/do-kwon-indicted-for-fraud" target="_blank" rel="noreferrer noopener">charged Kwon with securities fraud</a>, wire fraud and commodities fraud.



It could take time for South Korea and the US to see their requests fulfilled. Kovac said both men are currently being investigated for possession of false documents, for which they could face criminal proceedings.&nbsp;



A potential sentence could carry up to five years prison time, and both individuals could only be extradited after a court ruling. Kwon told officials in Montenegro that he was used to “VIP treatment” when they were anywhere else in the world, <a href="https://www.bloomberg.com/news/articles/2023-03-28/crypto-fugitive-kwon-tells-police-he-got-vip-service-on-the-run?leadSource=uverify%20wall" target="_blank" rel="noreferrer noopener">Bloomberg</a> reported.



<h2>Terra crash triggered bankruptcies and billions in losses</h2>



Following the collapse of Kwon’s algorithmic stablecoin last May, South Korea officially issued an arrest warrant for Kwon in September, along with five other employees at the software startup behind the project, Terraform Labs.&nbsp;



That same month, Interpol issued a <a href="https://blockworks.co/news/global-wanted-persons-notice-for-do-kwon-issued-report" target="_blank" rel="noreferrer noopener">global request</a> to arrest Kwon, essentially asking its 195 member countries to apprehend the fugitive. 



Terra’s demise is estimated to have <a href="https://blockworks.co/news/ftx-not-worst-bad-thing-in-crypto-this-year" target="_blank" rel="noreferrer noopener">wiped $20.5 billion</a> in nominal value from personal crypto wallets, according to Chainalysis. The dramatic event kickstarted a wave of <a href="https://blockworks.co/news/crypto-fund-three-arrows-capital-facing-potential-insolvency-report" target="_blank" rel="noreferrer noopener">liquidations</a>, <a href="https://blockworks.co/news/celsius-bankruptcy-return-50m" target="_blank" rel="noreferrer noopener">bankruptcies</a> and <a href="https://blockworks.co/news/how-cryptoasset-markets-have-changed-since-terra-crash" target="_blank" rel="noreferrer noopener">tumbling crypto markets</a>.



And even though Kwon publicly maintained that he was not “on the run” the whole time, reports indicated he continually moved around Europe and Asia, including through <a href="https://blockworks.co/news/terra-founder-kwon-not-on-run-now-serbia-prosecutor" target="_blank" rel="noreferrer noopener">Singapore and Serbia</a>.&nbsp;



South Korean officials announced in November that the fugitive’s passport was <a href="https://blockworks.co/news/terra-founder-do-kwon-still-defiant-as-south-korea-cancels-passport" target="_blank" rel="noreferrer noopener">made invalid</a>, after which Kwon <a href="https://twitter.com/stablekwon/status/1588298460595249153" target="_blank" rel="noreferrer noopener">tweeted</a> he would organize a meetup or a conference, with international authorities invited.



Kwon was aware of losing his passport, earlier indicating in an <a href="https://blockworks.co/news/do-kwon-claims-indifference-over-losing-south-korean-passport" target="_blank" rel="noreferrer noopener">interview</a> with journalist Laura Shin that he was indifferent about it becoming void.



“I’m not using it anyway. I can’t see how that makes a difference,” he said at the time, without clarifying whether he held another passport.



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US vs. South Korea: Which Country Will Extradite Terra Founder?

Consumers and investors burned in recent crypto bankruptcies and failures are taking a page from the Bernie Madoff trial book in opting for civil suits to try to get more assets back.&nbsp;



If certain crypto tokens are deemed securities, it opens a new area of liability with respect to state laws, James <a href="https://go.perkinscoie.com/e/987562/ssionals-james-f-vivenzio-html/3n9vx/104306895?h=LG7QJhyNqK_iRcS-XK-Up6y7AxO_wAwWkJNP7xwLWNs">Vivenzio</a>, senior counsel at Perkins Coie, said during a webinar Wednesday. 



When Madoff was arrested, many of his victims opted for civil litigation to recover losses. <a href="https://blockworks.co/news/the-madoff-playbook-how-ftx-creditors-could-get-their-money-back">Creditors successfully clawed back more than $14 billion</a> of the estimated $18 billion to $20 billion stolen, according to <a href="https://www.linkedin.com/in/marcpowers22/details/experience/">Marc Powers</a>, a former securities law practice leader at Baker &amp; Hostetler — a firm that worked to recover funds for victims of Madoff’s Ponzi scheme.



A similar situation is playing out in crypto, Vivenzio said. <a href="https://blockworks.co/news/what-do-tom-brady-steph-curry-and-naomi-osaka-have-in-common-an-ftx-lawsuit">One class action lawsuit in Florida</a> in November 2022 against former FTX influencers cites the state’s Blue Skies law.&nbsp;



“Blue skies laws are just a state securities fraud law that requires registration and requires that you speak truthfully in connection with a security,” Vivenzio said. “[They are] designed to protect investors from ventures that have no more basis than so many feet of blue sky, as the old saying goes.”&nbsp;



But crypto claims are different from a typical fraud claim, according to Vivenzio, because the asset class is not traded on a national exchange. The FTX lawsuit in Florida alleges that <a href="https://blockworks.co/price/ftt" target="_blank" rel="noreferrer noopener">FTT</a>, FTX’s native exchange token, is a security — and that anyone who aids the sale of that security is responsible for any ensuing damage that may be caused. 



It’s not a common argument because these issues can usually only be charged on a state level,&nbsp; Vivenzio said.



“The state ‘Blue Sky’ theory seen here doesn’t arise in a lot of other cases when you&#8217;re dealing with nationally exchange-traded securities, because there&#8217;s a federal statute that says you can&#8217;t bring a class action for those times,” he said.&nbsp;



A so-called Blue Sky <a href="https://www.investopedia.com/terms/b/blueskylaws.asp#:~:text=Blue%20sky%20laws%20are%20state%2Dlevel%2C%20anti%2Dfraud%20regulations,up%20to%20the%20laws'%20provisions.">theory</a> is generally a state-level protection put in place in an effort to protect investors from securities fraud.&nbsp;



“But crypto is not traded on a national exchange,” Vivenzio said. “If it is a security, it opens up a new area of liability with respect to state or state laws.”&nbsp;



For the most part, celebrities have been targeted with these types of allegations, Vivenzio said, but the law is not limited to public figures. 



“If the theory that is articulated in this lawsuit is upheld, it really would provide for a very broad civil liability on a variety of claims, not just for promoters, not just for celebrities or YouTube influences, but for any agent or employee or officer of the entity that&#8217;s issuing the securities,” he said.



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