Casey Wagner

The highlights of the final day of the Blockworks’ Digital Asset Summit in London? Lots of politics and regulation talk, plus a four-legged guest. 



More than 1,500 crypto professionals, traditional finance executives and global legislators descended upon the Hilton London Metropole this week to hear from the leading voices in finance and crypto. 



The third and final day of the conference started off with a bang Wednesday morning when the discussion turned to the <a href="https://blockworks.co/news/crypto-super-pacs-election-primaries">upcoming US presidential election</a>.&nbsp;



“I will fight Donald Trump, toe to toe, until the election,” Anthony Scaramucci, founder and managing partner of SkyBridge, told a packed audience during the first panel discussion of the day.&nbsp;



Read more: <a href="https://blockworks.co/news/donald-trump-talks-bitcoin">Trump cites merchandise sales in apparent bitcoin U-turn</a>



“The bitcoiners love the guy,” Scaramucci, who worked under the former President as the White House Communications Director for a ten-day stint in 2017, added. “I would take bad policy over something that would knock out the separations of power.”&nbsp;



<a href="https://blockworks.co/tag/anthony-scaramucci">Scaramucci</a> wasn’t only critical of the Republican presidential nominee — he also took aim at Securities and Exchange Commission Chair Gary <a href="https://blockworks.co/tag/gary-gensler">Gensler</a>. 



“He’s <a href="https://blockworks.co/news/gary-gensler-bitcoin-etf-battle">very politically motivated</a>,” Scaramucci said. “I hate that.”&nbsp;



Lord Chris Holmes, member of the United Kingdom House of Lords, said during a separate session that the <a href="https://blockworks.co/tag/uk">UK</a> is learning from other countries, including those that have moved quickly on implementing crypto policy and those which have hardly moved at all.&nbsp;



“We have such an opportunity in the UK because we’ve seen what’s happening in the [European Union]…and indeed to a large extent what isn’t happening in the United States,” Lord Holmes said.&nbsp;



Read more: <a href="https://blockworks.co/news/uk-crypto-regulation-panel-das">The UK is at a turning point in crypto regulation, policymakers say&nbsp;</a>



Policymakers are gaining a better understanding of the crypto industry and its benefits, Dr. Lisa Cameron, member of the UK Parliament, said, and engaging with the industry is becoming common practice for her and her colleagues.&nbsp;



“I make it very much a point to come to these events to learn as much as to speak,” Dr. Cameron said. “It’s actually the digital revolution that we’re on the cusp of, and we need to make sure that the UK is at the helm of it.”



But, of course, a Lord will still stick out from the pack at a crypto conference.&nbsp;



“Just to show you how tuned-in to the tech ecosystem I am, I&#8217;m wearing a tie,” Lord Holmes mused, addressing the mostly T-shirt clad crowd. “But on the upside, I did come with a dog.”&nbsp;



Nancy, Lord Holmes’ guide dog — although asleep at her owners’ feet for the majority of her time on the main stage — perked up when the audience laughed.



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Digital Asset Summit Day 3: UK policymakers say they are all-in on crypto 

Ben Strack

What’s the biggest macro driver of crypto prices in the near term?



Moderator Noelle Acheson posed this question to 10T Holdings founder Dan Tapiero during the first panel discussion at Day 3 of Blockworks’ Digital Asset Summit in London.&nbsp;



Tapiero warned his answer might be “boring,” but he said it was easy: the ETFs.&nbsp;



The Securities Exchange Commission <a href="https://blockworks.co/news/sec-approves-bitcoin-etf">cleared 10 US spot bitcoin funds to start trading</a> on Jan. 11. The funds have so far tallied $11.6 billion of net inflows in their first 10 weeks on the market.&nbsp;



“You’ve onboarded literally tens of trillions of dollars in value sitting in global equity accounts that can now just push a button and own bitcoin,” Tapiero said. “It’s as if Coinbase in effect overnight added 100 million [users] … and I think it’s a very powerful trend; it’s the first inning of it.”



Read more: <a href="https://blockworks.co/news/bitcoin-etfs-tradfi-convergence">Bitcoin ETF catalyzing broader merge of TradFi, crypto: BlackRock exec</a>



Despite the fund category’s success, bitcoin ETFs endured net outflows on Monday and Tuesday, including a record $326 million of bleeding yesterday, according to BitMEX Research <a href="https://twitter.com/BitMEXResearch/status/1770365847925612714">data</a>.&nbsp;



The consecutive days of outflows — occurring for the first time since Jan. 24 and Jan. 25 — comes as bitcoin’s price dipped to around $61,000 on Tuesday, which is more than 15% off BTC’s all-time high of more than $73,000 reached the week prior.



Industry watchers have said that while initial demand for the funds has been from retail investors and registered investment advisers (RIAs), wirehouses and other platforms are set to start clearing these products for clients in the coming weeks and months.



Read more: <a href="https://blockworks.co/news/wealth-managers-feel-pressure-bitcoin-etfs">Restricting access to growing bitcoin ETFs becoming ‘hard to justify’</a>



“We haven’t seen anything that’s been so concentrated from the demand side,” Tapiero said. “There’s like a little bridge and the entire US wealth management world is trying to cross this little bridge into the new world.”&nbsp;&nbsp;&nbsp;



SkyBridge Capital founder Anthony Scaramucci, who joined Tapiero on the discussion, noted that his company sent $10 million to BlackRock in late 2022 — capital meant to ultimately become a position in what was later launched as the iShares Bitcoin Trust (IBIT).



The investment came after Scaramucci said he had a conversation with BlackRock CEO Larry Fink, who at the time was bearish on bitcoin as an asset. <a href="https://blockworks.co/news/blackrock-spot-bitcoin-etf-rumors">The executive’s tune has since changed</a>.&nbsp;&nbsp;



“I’m not patting ourselves on the back, I’m just telling you it was the bottom of the market, nobody wanted it and BlackRock was defensive,” Scaramucci said. “It is the largest ETF launch in the history of [ETFs].”



<a href="https://blockworks.co/news/blackrock-bitcoin-etf-battle">IBIT’s net inflows total about $13 billion</a> since launching on Jan. 11. It was the second-largest spot bitcoin ETF — with about $15.4 billion in assets under management as of market close Tuesday.



The BlackRock fund trails only the Grayscale Bitcoin Trust ETF (GBTC), which manages about $23 billion. GBTC ported over about $28 billion in existing assets when it converted to an ETF in January.



The impact of ETFs on bitcoin could soon bleed over into the segment’s second-largest asset: ether. The SEC is set to rule on <a href="https://blockworks.co/news/bitcoin-etfs-approved-ether-funds-next">proposed ETFs that would hold ETH</a> by May 23.&nbsp;



Tapiero and Scaramucci agreed that while the timeline on those products is unclear, those approvals are coming.&nbsp;&nbsp;



“Maybe by the end of the year, but very unlikely in May,” Scaramucci said. “It has to happen, but [Gensler’s] going to do things to delay it.”



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ETF adoption set to keep driving bitcoin price: 10T’s Dan Tapiero

Shalini Nagarajan

Skybridge Capital founder, Anthony Scaramucci, believes that Sam Bankman-Fried will face challenges in resolving his current situation.



Scaramucci, who was a mentor and close friend to Bankman-Fried, invested $10 million worth of FTX&#8217;s token (FTT), after the embattled exchange acquired 30% of SkyBridge Capital in 2022.



As part of the agreement, SkyBridge had to invest $40 million in cryptocurrencies for its corporate balance sheet.&nbsp;



In a CNBC interview <a href="https://www.cnbc.com/video/2023/10/03/its-going-to-be-very-very-tough-for-bankman-fried-to-win-this-case-says-anthony-scaramucci.html">released</a> Tuesday, the hedge fund manager acknowledged the trust that many venture capitalists had in the former FTX CEO.&nbsp;



Read more: <a href="https://blockworks.co/news/ftx-ventures-buys-30-stake-in-scaramuccis-skybridge-capital">FTX Ventures Buys 30% Stake in Scaramucci’s SkyBridge Capital</a>



Bankman-Fried currently faces <a href="https://blockworks.co/news/sam-bankman-fried-trial-starting-soon">seven federal charges</a>, including two allegations of wire fraud and five charges of conspiracy. His trial is currently underway.&nbsp;



Prosecutors disclosed on Tuesday that the government <a href="https://blockworks.co/news/sbf-trial-no-plea-deal">never presented Bankman-Fried with any form of plea agreement</a> in exchange for admitting to the charges.



Scaramucci — who said he won’t be a witness in the case — told CNBC it will be “very, very tough” for the former billionaire CEO to prevail.



“I think this has been a very rough thing for very many people,” he said.



“If someone is committing fraud, they can commit fraud in any industry across the spectrum. And so, I just think it&#8217;s really sad that he&#8217;s giving the cryptocurrency world a bad moniker as a result of all this,” he added.



Don’t miss a moment of SBF’s time in court. Stay up to date with all <a href="https://blockworks.co/tag/sbf-trial">trial coverage</a> from Blockworks.



Scaramucci says that, like a million other investors, he had faith in Bankman-Fried.



He highlighted the reasons for the trust placed in Bankman-Fried, such as FTX&#8217;s significant market share in crypto trading.



He also noted that author Michael Lewis discussed how people in venture capital saw Bankman-Fried as potentially being the “Mark Zuckerberg of crypto.”



When asked how long he thought the trial would go on, Scaramucci said: “It’s hard to say. He needs his day in court. I think this probably goes on until Christmas.”



As FTX faced its downfall, Scaramucci <a href="https://blockworks.co/news/scaramucci-skybridge-flew-bahamas-help-bankman-fried-didnt-work">urged Bankman-Fried to cooperate with regulators</a> about enquiries into the exchange&#8217;s collapse.



He earlier told CNBC that in November, he traveled to the Bahamas, where FTX was headquartered, in an attempt to help the company.



But after meeting with a &#8220;contrite&#8221; Bankman-Fried and his team, it became evident that the situation was beyond salvage.



When FTX initially invested in SkyBridge, Scaramucci <a href="https://www.prnewswire.com/news-releases/ftx-ventures-to-acquire-stake-in-skybridge-capital-301621035.html">referred</a> to Sam Bankman-Fried as a &#8220;visionary.”



In the past year, SkyBridge&#8217;s portfolio has experienced a decline, with assets under management totaling about $1.8 billion as of June 2023. This includes around $580 million in digital asset-related investments.



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Sam Bankman-Fried faces an uphill battle in fraud case, former mentor Scaramucci says

SkyBridge Capital founder Anthony Scaramucci has implored FTX CEO Sam &#8220;SBF&#8221; Bankman-Fried to open up to regulators about the collapse of the exchange. 



The venture arm of crypto exchange FTX would acquire 30% of SkyBridge Capital, <a href="https://cms.blockworks.co/news/ftx-ventures-buys-30-stake-in-scaramuccis-skybridge-capital/" target="_blank" rel="noreferrer noopener">the companies revealed</a> in September. Exact details of the deal were not disclosed.



SkyBridge, an alternative investment firm bullish on crypto, intended to use part of the proceeds to buy $40 million in digital assets for its corporate balance sheet as a long-term investment.



“For myself, I’ll be working on buying back my equity and restoring that,” Scaramucci <a href="https://www.cnbc.com/video/2022/11/11/anthony-scaramucci-breaks-down-his-recent-meeting-with-ftxs-sam-bankman-fried.html" target="_blank" rel="noreferrer noopener">told CNBC</a> Friday.



The SkyBridge founder said he flew to the Bahamas, where FTX is based, on Tuesday seeking to help FTX. It became clear upon meeting with a &#8220;contrite&#8221; Bankman-Fried, alongside members of his team, that it was “beyond a rescue situation.”



“The good news for SkyBridge investors, we had no assets [custodied] there,” Scaramucci said. “We thought that was a potential conflict of interest, so we were saved that way.”



At the time FTX invested in SkyBridge, Scaramucci called FTX CEO Sam Bankman-Fried a “visionary” in a statement.



“I liked — and like — and trusted Sam, and that violation of trust didn’t go just to me, but 20-plus venture capitalists, people around the world that trusted the brand and trusted the technology,” Scaramucci said.



<h3 class="wp-block-heading">Scaramucci or not, SBF has declared FTX bankrupt</h3>



FTX said Friday morning it had<a href="https://cms.blockworks.co/news/ftx-ceo-bankman-fried-resigns-bankruptcy-proceedings-begin/" target="_blank" rel="noreferrer noopener"> commenced Chapter 11 bankruptcy proceedings</a> alongside roughly 130 affiliated companies. Bankman-Fried resigned as FTX’s CEO, bringing in John J. Ray III — a former overseer of the liquidation of Enron — to help the company <a href="https://cms.blockworks.co/news/whats-next-for-ftx-and-its-customers-after-bankruptcy-filing/" target="_blank" rel="noreferrer noopener">navigate next steps</a>.



The move comes as regulatory and legal authorities look into the allegation that FTX loaned customer funds to Alameda Research, the trading arm Bankman-Fried also co-founded.



Bankman-Fried tweeted Friday that he hoped the bankruptcy process could bring transparency, trust and governance. The FTX founder said in a 22-tweet thread Thursday morning that FTX was in search of liquidity. Binance intended to acquire the company, but decided not to, citing “the latest news reports regarding mishandled customer funds and alleged US agency investigations.”&nbsp;&nbsp;&nbsp;



Scaramucci told CNBC that rather than tweeting, Bankman-Fried should explain to regulators exactly what happened to his company.



“If you’re a believer in quote-unquote effective altruism, you’ve done damage to this industry, you’ve done damage to the people in this industry and the account holders that trusted you, so enough is enough,” he said.&nbsp;



“Don’t let a charade go on. Speak candidly, directly and honestly so we can clean this up immediately.”



A SkyBridge spokesperson declined to comment further. 



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Scaramucci Flew to Bahamas to Help Bankman-Fried. It Didn’t Work

<div id="highlights-block_6345a3b95ef60" class="highlights">
 <ul>
 <li>“Crypto voters,” which pollsters described as voters who own or are considering owning digital assets, make up 44% of voters across the country</li>
 <li>The core group is made up of mostly young men, with 58% of them being men under 55, while 32% of voters who own crypto are people of color, according to the poll</li>
 </ul>
 
</div>



As midterm elections approach, so-called “cryptocurrency voters” are becoming an increasingly desirable bloc, according to a political action committee that recently hit the scene.&nbsp;



GMI PAC, a crypto-focused group backed by <a href="https://cms.blockworks.co/tag/anthony-scaramucci/" target="_blank" rel="noreferrer noopener">SkyBridge’s Anthony Scaramucci</a>, was formed in January 2022. “GMI” stands for popular crypto slang, “gonna make it.” 



The PAC and its policy institute recently commissioned a poll of voters and their stance on cryptocurrency. The poll was conducted by Global Strategy Group and Fabrizio, Lee &amp; Associates. The poll’s findings suggest that regular voters may be starting to care about crypto policy issues just in time for the midterms this year.&nbsp;



“Crypto voters,” which pollsters described as voters who own or are considering owning digital assets, make up 44% of voters across the US. A subset of 17% of voters already own crypto, according to the poll.&nbsp;



“This core of 17% who already own cryptocurrency is an extremely competitive group of voters that both Democrats and Republicans have been pitching in recent elections,” the poll conductors wrote in a report shared with Blockworks.&nbsp;



The core group is made up of mostly young men, with 58% of them being men under 55. A third of voters who own crypto are people of color, according to the poll. And — even better for candidates — they don’t appear to be overwhelmingly from one party or another, the poll found.&nbsp;



&#8220;Both parties are in a battle to connect with younger Black and Hispanic men — groups that have shown over the past few cycles to be less calcified in their party preference. These groups also own crypto at much higher rates,” Bobby Kaple, senior advisor to GMI PAC, said. “Connecting with them on crypto issues could unlock just enough support to win some of these tight races.&#8221;



Cryptocurrency ownership straddles the partisan divide, the report notes: “18% of Democrats currently own cryptocurrency, while 16% of independents and 16% of Republicans do,” it said.&nbsp;



GMI PAC leaders are banking on crypto-focused voters showing up in November.&nbsp;



&#8220;At 17% of voters, the crypto voter bloc is large enough to swing a close race,” Michael Carcaise, managing director of GMI PAC, said. “For example, in 2020, Biden defeated Trump in Pennsylvania by 80,555 votes. We expect more than 837,000 Pennsylvanians who own crypto to go to the polls in November.&#8221;



Other GMI PAC backers include FTX, run by <a href="https://cms.blockworks.co/tag/sam-bankman-fried/" target="_blank" rel="noreferrer noopener">billionaire Sam Bankman-Fried</a>, who vowed to donate $1 billion or more to political causes before 2024, and crypto data provider Messari. Messari’s head, Ryan Selkis, was rumored at the Mainnet Conference in New York in September 2021 to be floating the idea of a US Senate run himself.



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Poll: US Voters Who Own Crypto Are on the Rise, Just in Time for Midterms

<div id="highlights-block_631b41e9906f7" class="highlights">
 <ul>
 <li>The capital will help SkyBridge buy $40 million of crypto to hold on its balance sheet long-term</li>
 <li>FTX Ventures recently led the $300 million Series B round for Mysten Labs, which was announced Thursday</li>
 </ul>
 
</div>



The venture arm of crypto exchange <a href="https://cms.blockworks.co/tag/ftx/" target="_blank" rel="noreferrer noopener">FTX</a> is set to acquire 30% of alternative investment firm SkyBridge Capital, the companies revealed Friday.



SkyBridge, founded by Anthony Scaramucci in 2005, will use part of the proceeds to buy $40 million in cryptocurrencies for its corporate balance sheet as a long-term investment, with the remaining set aside to fund new initiatives.



An SEC-registered investment adviser, SkyBridge managed roughly $2.5 billion, as of June 30, including about $800 million in digital assets. 



Scaramucci called <a href="https://cms.blockworks.co/tag/sam-bankman-fried/" target="_blank" rel="noreferrer noopener">FTX CEO Sam Bankman-Fried</a> a “visionary” in a statement, noting that the business will remain a diversified asset management firm that invests heavily in blockchain. 



The investment follows a partnership between FTX and SkyBridge to sponsor <a href="https://www.salt.org" target="_blank" rel="noreferrer noopener">SALT</a> conferences in North America, Asia and the Middle East, as well as to co-present April’s <a href="https://www.cryptobahamas.com" target="_blank" rel="noreferrer noopener">Crypto Bahamas</a> conference, where FTX <a href="https://cms.blockworks.co/bahamas-becoming-crypto-hub/" target="_blank" rel="noreferrer noopener">earlier this year</a> pledged to set up a headquarters.



&#8220;We saw there was an opportunity to work closer together in ways that could complement both our businesses,&#8221; Bankman-Fried said in a statement. &#8220;We look forward to collaborating closely with SkyBridge on its crypto investment activity and also working alongside them on promising non-crypto-related investments.&#8221;



Specific terms of the deal were not disclosed. Spokespeople for the companies did not immediately return a request for comment.&nbsp;



The investment comes a day after <a href="https://cms.blockworks.co/tag/ftx-ventures/" target="_blank" rel="noreferrer noopener">FTX Ventures</a> revealed investment in Mysten Labs, builder of the Sui blockchain. The fund <a href="https://cms.blockworks.co/mysten-labs-300m-fundraise-values-business-at-more-than-2b/" target="_blank" rel="noreferrer noopener">led its $300 million Series B round</a>, which valued Mysten at more than $2 billion. 



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FTX Ventures Buys 30% Stake in Scaramucci’s SkyBridge Capital

David Canellis

<div id="highlights-block_62a8e9e6b31d4" class="highlights">
 <ul>
 <li>“Macro is driving problems with Celsius rather than Celsius driving problems for the market,” Arca’s Dorman said</li>
 <li>Scaramucci is still long-term bullish but warned crypto investors must stomach current volatility</li>
 </ul>
 
</div>



Crypto markets are squarely in the toilet. Bitcoin is trading around $22,000 — almost 70% below its November all-time high. Ether, somehow, has fared even worse.



Collapsing lending platform Celsius makes for an easy scapegoat for the widespread carnage. Rumors of its insolvency preceded Celsius&#8217; native token, CEL, dumping 50% this month. The platform has since <a href="https://cms.blockworks.co/celsius-lending-platform-suspends-withdrawals-and-transfers/" target="_blank" rel="noreferrer noopener">locked</a> users out of their accounts while it wrangles various leveraged decentralized finance (DeFi) positions.



Just weeks ago, markets reeled from the Terra ecosystem’s <a href="https://cms.blockworks.co/?s=terra" target="_blank" rel="noreferrer noopener">implosion</a>, which all but wiped out the ninth and 10th largest tokens by market capitalization and some $40 billion in representative value along with it.&nbsp;



But macroeconomic factors such as inflation, rate hikes and the war in Ukraine have pushed the tech-heavy Nasdaq and the broader S&amp;P 500 down 30% and 20%, respectively, this year as the US flirts with a recession. Commodities, meanwhile, are surging, with benchmark index S&amp;P GSCI up more than 40% year to date.&nbsp;



It’s clear investors are moving from “risky” assets such as crypto and tech stocks into more recession-resistant plays.&nbsp;



It all presents a classic chicken-and-egg problem: Did Celsius trigger cryptocurrency to shed more than 25% from its collective value over the past week, or are investors simply de-risking across the board?



<h3 class="wp-block-heading">The Great De-risking</h3>



Anthony Scaramucci, managing partner at hedge fund of funds SkyBridge Capital, told Blockworks he wasn’t surprised by sinking crypto prices. SkyBridge offers an institutional bitcoin fund, as well as other vehicles designed to offer limited partners crypto exposure.&nbsp;



“You have a risk-off market, an oil crisis born from the current war environment, and you have the vestiges of the pandemic,” Scaramucci said. “As well, we may not be feeling it as much in Europe and the United States, but they&#8217;re going through ‘zero Covid’ lockdown strategies in China, and that&#8217;s having a huge effect on the supply chain.”



The precarious macro landscape — combined with too much money in traders’ pockets as a result of US stimulus measures — has led to big inflation numbers, according to Scaramucci, causing correlation across multiple asset classes, as with tech stocks and bitcoin.&nbsp;



“Bitcoin, in a buoyant market, goes up more than the market,” he said. “In a downtrodden, depressed market, it&#8217;s going to go down more.”



The financier posited rising inflation is not likely systemic or secular, but born directly from the aforementioned ongoing crises.&nbsp;



“A year from now, we could very well be out of the pandemic, and the inflation numbers could actually trend down,” added Scaramucci, who this week <a href="https://twitter.com/SquawkCNBC/status/1536314248539815936" target="_blank" rel="noreferrer noopener">told</a> CNBC that SkyBridge had just bought more bitcoin and ether. “The future of the web is going to include these decentralized technologies — I&#8217;m incredibly long-term bullish. You just have to have the stomach for this level of volatility right now.”



<h3 class="wp-block-heading">Macro factors exposed unsustainable digital assets</h3>



Jeff Dorman, chief investment officer at crypto investment firm Arca, said the dampened macro environment has driven some participants to take on additional risk.&nbsp;



“I think macro is driving problems with Celsius, rather than Celsius driving problems for the market,” Dorman said. “If Bob gives me one bitcoin, (BTC) and I pay him 2% interest for that, and then I lend it to Alice, who pays me 3% — that’s easy. I have a one-for-one asset liability match. And I’m making 1% net interest margin on the spread,” Dorman said.



Problems arise when Bob gives five BTC, but Alice only wants to borrow one. The lender still has to pay Bob 2% on his five BTC while Alice is only paying the lender 3% on one.



“Now, I have to figure out how to make up that yield,” Dorman said. “So, what am I going to do? I&#8217;m gonna go do risky hedge fund shit to make up that yield and hope that nobody knows what I&#8217;m doing — because nobody&#8217;s paying attention, because it&#8217;s unregulated. That’s where these companies get in trouble: They&#8217;re basically operating like unregistered hedge funds.&#8221;



But Dorman rejected the current zeitgeist that demands investors lump all digital assets together to consider them one giant risk trade, with bitcoin the least risky, outside of stablecoins.



Believing that bitcoin is king and everything else is an altcoin is an “archaic way of thinking about this market,” he said, the equivalent of labeling the S&amp;P 500 the only ETF and everything else a lesser, alternative ETF.



Crypto investors might wonder: Absent an exit from digital asset markets entirely, what does de-risking look like?



<h3 class="wp-block-heading">Defensive digital assets</h3>



Of course, there are stablecoins, some riskier than others. (SkyBridge’s Scaramucci said Circle’s USD Coin and Tether held up remarkably well throughout the recent chaos, with both firms processing billions of dollars worth of redemptions without downtime.)



Scaramucci suggested investors stay away from leverage, saying: “Stay unlevered. Be long term in your orientation. What&#8217;s caused the upside surprises and the downside surprises is the leverage in the system.”



To Arca’s Dorman, persistent price correlation in crypto is the result of an immature investor class, rather than anything inherent to digital assets.



“In theory, bitcoin has nothing to do with Axie Infinity, which has nothing to do with BNB,” Dorman said. “But if one guy owns all three, and they&#8217;re using those three as collateral to do something, they&#8217;re going to be a forced seller of all three at the same time.”



Crypto exchange tokens should be resistant to market downturns in a mature market (there’s been some <a href="https://cms.blockworks.co/native-crypto-exchange-tokens-hint-at-first-sign-of-broader-market-recovery/" target="_blank" rel="noreferrer noopener">indication</a> already), while native assets for blockchain-powered games should even <a href="https://cms.blockworks.co/crypto-markets-have-tanked-but-not-blockchain-based-gaming/" target="_blank" rel="noreferrer noopener">prove resilient</a> during a recession, Dorman said — as long as the tokens are structured with sustainability in mind.



“In the digital asset world, what are the areas where investors won&#8217;t stop what they&#8217;re doing just because of a bad market or because of a recession? Gamers don&#8217;t stop gaming because of recession,” he said. “If anything, they actually start gaming more, because they have more time on their hands and they&#8217;re not working. Gaming, in theory, should be a defensive sector.”



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Did Macro Kill Crypto or Are Risk-laden Lenders to Blame?

<div id="highlights-block_615234a60da55" class="highlights">
 <ul>
 <li>High valuations and regulatory uncertainty could make acquisitions of large crypto businesses tough for Wall Street giants in short-term, industry watchers say</li>
 <li>Banks like Goldman Sachs or Morgan Stanley could be more attracted to firms like Genesis or Galaxy Digital than Coinbase, Architect Partners executive argues </li>
 </ul>
 
</div>



The worlds of crypto and traditional finance are set to collide, and mergers and acquisitions will play a key role, according to industry watchers. What form the M&amp;A will take and how soon it will come remains to be seen.&nbsp;



Banks or investment banks will be in the crypto market in a big way, said Eric Risley, a managing partner at <a href="https://www.architectpartners.com" target="_blank" rel="noreferrer noopener">Architect Partners</a>, though big acquisitions likely won’t take shape in the near-term.



“It’s probably more like three years than three months,” Risley told Blockworks. “&#8230;If you’re looking at it from an investor perspective and you believe crypto assets are an asset class, why wouldn’t a Goldman Sachs or Morgan Stanley be in that business?”



Risley’s comments come a few days after Anthony Scaramucci, founder of SkyBridge Capital, predicted during an interview with Bloomberg that a big bank frustrated by the growth of decentralized finance will buy a crypto firm such as <a href="https://www.coinbase.com" target="_blank" rel="noreferrer noopener">Coinbase</a>.



A SkyBridge spokesperson did not immediately respond to Blockworks’ request for comment.



<h3 class="wp-block-heading">High valuations</h3>



The regulatory questions around crypto and the high valuations of companies in the space will likely inhibit a large traditional bank from making such a large acquisition, especially in the short-term, Risley argued.&nbsp;



“There’s always a tension with regard to valuation,” Risley said. “If you’re buying a business that has a certain amount of cash flow or revenue, and you have to pay a much higher multiple than what you’re being valued at in the market, is that something you should do? In today’s market, that is an issue.”



Coinbase, which has 68 million users and $180 billion assets on its platform, <a href="https://cms.blockworks.co/coinbase-direct-listing-shares-are-limited-demand-is-high/" target="_blank" rel="noreferrer noopener">went public in April</a>. The cryptocurrency exchange reported more than $2.2 billion of revenue in this year’s second quarter.



Jay Biancamano, a managing director at financial services titan State Street, said during <a href="https://www.youtube.com/watch?v=T0yDm6fOspM&amp;t=29s" target="_blank" rel="noreferrer noopener">a Blockworks webinar</a> last week that if crypto company valuations were as low as they were in 2018, there would be a lot more M&amp;A.  



“The valuations have really gone through the roof,” he explained. “You look at [State Street’s] valuation, we’re close to $40 billion, and then you look at Coinbase’s valuation of $100 billion. Certainly there is an opportunity for Coinbase to move further into our space, but we’re also looking at organically moving into their space.”



Anthony Pompliano, of Pomp Investments, said during the discussion that though five years ago people guessed that Wall Street would buy up all the crypto companies, the incumbent financial players are now “poor” compared to them.&nbsp;



“My thought process right now is over the next five years many legacy institutions are going to be putting themselves up for sale,” Pompliano said. “They’re going to see innovation is going to disrupt their businesses and they’re basically going to try to extract whatever value they feel like they have left. The natural buyer of those organizations would be the crypto companies.”



<h3 class="wp-block-heading">Smaller deals are more likely&nbsp;</h3>



An easier step for a company like Goldman Sachs or Morgan Stanley might be to buy a smaller crypto firm like <a href="https://genesistrading.com" target="_blank" rel="noreferrer noopener">Genesis</a> or <a href="https://www.galaxydigital.io">Ga</a><a href="https://www.galaxydigital.io" target="_blank" rel="noreferrer noopener">l</a><a href="https://www.galaxydigital.io">axy Digital</a>, Risley added. 



“They’re more focused on institutional investors anyway, which is likely where the banks would want to start,” he said of Genesis and Galaxy. “And they would be more modest in size and valuation.”



Goldman Sachs <a href="https://cms.blockworks.co/goldman-sachs-doubles-down-on-crypto-with-derivatives-trading-team/" target="_blank" rel="noreferrer noopener">announced a digital asset strategy</a> in May that included offering bitcoin derivatives and opening a dedicated trading desk for cryptocurrency, and more recently <a href="https://cms.blockworks.co/goldman-sachs-teams-with-galaxy-to-meet-institutional-digital-asset-demand/" target="_blank" rel="noreferrer noopener">partnered with Galaxy</a> to help meet the increasing demand from institutions.



<a href="https://www.invesco.com/us/en/country-splash.html" target="_blank" rel="noreferrer noopener">Invesco</a>, a fund group that manages about $1.5 trillion in assets globally, also recently <a href="https://cms.blockworks.co/invesco-and-galaxy-team-to-build-suite-of-crypto-etfs/" target="_blank" rel="noreferrer noopener">announced a partnership with Galaxy</a> to create a suite of physically backed digital assets ETFs.



Morgan Stanley has also been moving slowly into the crypto space, <a href="https://cms.blockworks.co/morgan-stanley-files-for-bitcoin-exposure-in-12-funds/" target="_blank" rel="noreferrer noopener">filing for bitcoin exposure</a> in various funds. Several of its institutional portfolios <a href="https://cms.blockworks.co/morgan-stanley-europe-opportunity-fund-reports-doubling-bitcoin-holdings/" target="_blank" rel="noreferrer noopener">hold thousands of shares</a> of the Grayscale Bitcoin Trust (GBTC), filings show. 



Dan Sondhelm, CEO of marketing consulting firm Sondhelm Partners, said “a good proportion” of the asset managers and other financial firms he works with are interested in expanding into the crypto space. A growing number of inbound requests are from boutique crypto managers who want to grow organically, expand to more sophisticated client bases or find a strategic partner who brings stronger sales and marketing capabilities, he noted.



“I believe it’s a mistake for many firms to not stay abreast of the opportunities and challenges,” Sondhelm said. “&#8230;Several discussions between firms with sales and marketing and boutiques are currently in the dating phase.”



As financial services incumbents look to build, many will likely opt for smaller deals that add technology and other capabilities, Risley said, much like <a href="https://cms.blockworks.co/mastercard-to-acquire-crypto-intelligence-company-ciphertrace/" target="_blank" rel="noreferrer noopener">Mastercard’s recent purchase</a> of crypto intelligence company CipherTrace.



<h3 class="wp-block-heading">How interested are institutions?</h3>



Scaramucci also told Bloomberg that those who say there is institutional adoption in crypto are “not being totally honest.”&nbsp;



SkyBridge’s CEO said that the new asset class is controlled by what Scaramucci evaluated to be about 10% of the financial services space.



Regulatory uncertainty will act as an inhibitor for certain institutional investors, Risley said, but some are moving toward crypto, and it is still early.&nbsp;



<a href="https://cms.blockworks.co/fidelity-71-of-institutional-investors-plan-to-buy-crypto/" target="_blank" rel="noreferrer noopener">According to a survey</a> by Fidelity Digital Assets, seven in 10 institutional investors see themselves gaining crypto exposure going forward, and more than 90% of those interested in digital assets expect to have portfolio allocation within five years.



Diogo Monica, co-founder president of <a href="https://www.anchorage.com" target="_blank" rel="noreferrer noopener">Anchorage Digital</a>, told Blockworks in an email that interest is particularly strong from institutional investment consultants, who are getting inquiries from their client base &#8211; pensions, endowments and family offices &#8211; about how to safely access and hold crypto.



Bobby Zagotta, US CEO at <a href="https://www.bitstamp.net" target="_blank" rel="noreferrer noopener">Bitstamp</a>, noted that Bitstamp has seen a <a href="https://cms.blockworks.co/bitstamp-usa-ceo-the-crypto-industry-is-still-in-early-stages-for-global-adoption/" target="_blank" rel="noreferrer noopener">666% growth in institutional investors</a> since opening in the US.



&#8220;Because of increased regulation, attention, and broad adoption,” Zagotta said, “we will continue to see everyday investors and financial institutions utilize cryptocurrencies and validate the underlying value proposition of digital assets over the long term.”



<hr class="wp-block-separator"/>
Are you a UK or EU reader that can’t get enough investor-focused content on digital assets? <a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.
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Are TradFi and Crypto Set for an M&A Explosion?

<div id="highlights-block_614a27561d180" class="highlights">
 <ul>
 <li>Osprey Funds’ support of Ethereum-compatible blockchain Polygon (formerly Matic Network) comes after the firm launched an offering earlier this month focused on layer-1 Solana</li>
 <li>Top holdings of the First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT) include Coinbase, Marathon Digital, Riot Blockchain, MicroStrategy and Square</li>
 </ul>
 
</div>



Osprey Funds has launched the first US fund to invest exclusively in the native token of the Polygon network, while First Trust Advisors and SkyBridge Capital have brought to market a new actively managed ETF that will buy the stocks of crypto and digital economy companies.



A protocol for developing blockchains on top of Ethereum, Polygon gains from Ethereum’s secure network while mitigating common blockchain pain points, such as high gas fees and slow transactions, according to Osprey Funds CEO Greg King.



“Polygon is compelling for the flexibility that it brings to ETH,” King told Blockworks in an email. “It is not just a layer-2 scaling solution — it delivers a set of tools that facilitate exciting new [decentralized apps] while still being part of the Ethereum ecosystem.”



Its native token, $MATIC, was priced at $1.12 as of 1:30 pm Eastern on Tuesday, according to <a href="https://www.coingecko.com/en/coins/polygon" target="_blank" rel="noreferrer noopener">CoinGecko</a>, which was down 10.6% in the last seven days. Polygon’s market capitalization was just below $7.5 billion at that time.



While often described as a layer-2, Polygon’s security model is based on an independent set of validator nodes that stake $MATIC and participate in validating transactions. Polygon periodically creates “checkpoints” recorded on the Ethereum mainnet, roughly every 10 minutes, of its state — a snapshot of its transaction record. That increases its security relative to some blockchains, but the Proof-of-Stake commit chain — an entirely separate blockchain — is quite different from layer-2 implementations built on top of Ethereum mainnet, like Optimism and Arbitrum, which inherit Ethereum’s security directly through the use of &#8220;optimistic <a href="https://ethereum.org/en/developers/docs/scaling/layer-2-rollups/" target="_blank" rel="noreferrer noopener">rollups</a>.&#8221;



<div class="wp-block-image"><figure class="aligncenter size-large is-resized"><img loading="lazy" decoding="async" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-21-polygon-intrographic-2-1-1024x1024-1-1024x1024-1.jpg" alt="" class="wp-image-8338" width="512" height="512"/><figcaption>Graphic: <a href="https://immunebytes.com/introduction-to-polygon-is-it-the-solution-to-ethereums-problems/" target="_blank" rel="noreferrer noopener">immunebytes.com</a></figcaption></figure></div>



<h3 class="wp-block-heading">Branching out</h3>



Osprey’s launch comes about two weeks after the New York-based digital asset manager <a href="https://cms.blockworks.co/osprey-funds-launches-solana-trust-amid-tokens-rally/'" target="_blank" rel="noreferrer noopener">kicked off</a> the <a href="https://ospreyfunds.io/products/osol/" target="_blank" rel="noreferrer noopener">Osprey Solana Trust</a> for private placement. It also offers products focused on Bitcoin, Polkadot and Algorand.



Like the Solana Trust, the Polygon Trust is currently available to accredited investors and has a $10,000 minimum investment. Osprey intends to list the fund on the OTCQX market and has agreed to waive the management fee for all investors until January 2023.



King told Blockworks at the time that the firm was focused on launching first-to-market funds that track promising layer-1 protocols. Though he labeled Solana and Algorand as potential challengers to Ethereum, he said Osprey remains supportive of Ethereum.



Tushar Jain, a managing partner at Multicoin Capital, <a href="https://cms.blockworks.co/das-2021-are-layer-1s-better-than-layer-2s/" target="_blank" rel="noreferrer noopener">argued at Blockworks’ Digital Asset Summit</a> last week that layer-1 blockchains are currently more reliable than the layer-2s built on top of them. Ava Labs President John Wu said, <a href="https://cms.blockworks.co/das-2021-ava-labs-wu-says-economies-will-depend-on-next-gen-layer-1s/" target="_blank" rel="noreferrer noopener">during a separate session</a> at the conference, that the new wave of layer-1s “are where the economies will be.”&nbsp;



“Our future product development will continue its focus on layer 1s,” King said Tuesday, “but layer 2s and beyond are possible as we broaden the Osprey product set.”



Broader crypto exposure in an ETF



Also on Tuesday, First Trust unveiled an actively managed ETF sub-advised by SkyBridge Capital.



<a href="https://www.ftportfolios.com/LoadContent/gchdqptsgrao" target="_blank" rel="noreferrer noopener">The First Trust SkyBridge Crypto Industry and Digital Economy ETF</a> (CRPT) seeks to invest at least 80% of its net assets in the stocks and American depository receipts of crypto and digital economy companies. It will not invest directly in digital assets or indirectly through the use of derivatives or through investments in funds or trusts that hold them.



Anthony Scaramucci, founder and managing partner of SkyBridge, said in a statement that cryptocurrency adoption represents “the biggest macro trend since the commercialization of the internet.” The fund, which costs 85 basis points, will be managed by Scaramucci and Brett Messing, SkyBridge’s president and co-chief investment officer.



CRPT’s top five holdings are Coinbase, Marathon Digital, Riot Blockchain, MicroStrategy and Square, Bloomberg Intelligence Senior ETF Analyst Eric Balunchas noted in <a href="https://twitter.com/EricBalchunas/status/1440302883669348364" target="_blank" rel="noreferrer noopener">a Twitter post</a>.&nbsp;



The new fund’s largest competitor will be Amplify Investments’ Transformational Data Sharing ETF (BLOK), which has nearly $1.3 billion in assets. That actively managed product, which launched in January 2018, carries an expense ratio of 71 basis points.&nbsp;



VanEck’s Digital Transformation ETF (DAPP) and Bitwise Asset Management’s Crypto Industry Innovators ETF (BITQ), are index offerings that launched in April and May, respectively. DAPP costs 50bps, while BITQ is priced at 85bps.



“The honest truth is that there are so few companies that are even remotely pure plays in the space that they all look remarkably similar,” Dave Nadig, chief investment officer and director of research at ETF Trends, told Blockworks. “The top tens for BITQ, DAPP and CRPT are all essentially the same if not very close, with the weighting schemes the main difference.”



<blockquote class="wp-block-quote">“While I think it&#8217;s great there are so many options out there, choosing between them is extremely difficult based on anything but a most cursory set of analysis,” Nadig added. “Do you want indexed or not, what kind of concentration can you stomach, how long do you plan on holding and thus how fee sensitive are you?”</blockquote>



Other funds in the space include the Siren Nasdaq NexGen Economy ETF (BLCN), the Capital Link Global Fintech Leaders ETF (KOIN) and First Trust’s own Indxx Innovative Transaction &amp; Process ETF (LEGR). Invesco <a href="https://cms.blockworks.co/invesco-proposes-crypto-economy-etf/" target="_blank" rel="noreferrer noopener">revealed plans in June</a> to launch a Crypto Economy ETF that would invest primarily in entrenched crypto companies and up to 10% in bitcoin futures contracts.



<hr class="wp-block-separator">
Are you a UK or EU reader that can’t get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.
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