Darren Kleine

Is there a better way to gauge public sentiment these days than by Twitter poll? It seems to work pretty well for Elon Musk, anyway.



In a recent <a href="https://twitter.com/santiagoroel/status/1663620846185766914?s=20">tweet</a>, seed investor Santiago R. Santos pitched investment possibilities to followers, asking what he should build in order to “have the most impact” in the <a href="https://blockworks.co/tag/crypto">crypto</a> industry. The preferred choice won by a landslide.



The large majority — 77% of the more than 2,000 votes — were in support of building a new “crypto-friendly bank.”&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">I have a growing desire to build something in crypto beyond investing my own capital and education thru the Empire podcast. I have a few ideas and thought it would be good to open source the process of what I do next by gathering external input. This is the commencement of that…&mdash; Santiago R Santos | #9159 (@santiagoroel) <a href="https://twitter.com/santiagoroel/status/1663620846185766914?ref_src=twsrc%5Etfw">May 30, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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The recent collapses of <a href="https://blockworks.co/news/signature-silicon-valley-bank-made-whole">Silicon Valley Bank</a>, <a href="https://blockworks.co/tag/signature">Signature</a> and <a href="https://blockworks.co/tag/silvergate">Silvergate</a>, the most prominent crypto-friendly banks in America, <a href="https://blockworks.co/news/operation-choke-point-2-0">left a vacuum in the space</a> for industry clients. Santos spoke to Blockworks on <a href="https://www.youtube.com/watch?v=4MHwnbLSxAs">the Empire podcast</a> about his plans to fill the void.



Santos prefaces the conversation by confiding he’s not “a good builder,” but is a “better investor.” He chuckles as he says this is “probably the worst time” to start up a crypto-friendly bank, “given everything that&#8217;s going on.”



“Every small bank is collapsing.”&nbsp;



“It’s really hard,” he says, “specifically if you want to do crypto stuff — Signature’s down, Silvergate’s down,” along with a number of traditional banks.



<h2 class="wp-block-heading">Rebuilding something that actually works</h2>



But Santos says when he looks at the current precarious situation, he is inspired to build.



The investor admits that he has no interest in directly running a bank. “There are smarter, more competent people to do that,” he says. His role would be to assemble a team and guide it with everything that he’s lived through “over the years in crypto” and from his experiences in traditional finance.



“Someone&#8217;s gonna pick up the ashes and rebuild something that actually works.”



Asked whether he’s envisioning a business or consumer-focused banking service, Santos replies that he imagines building “an everything bank,” servicing individuals who are on and off-boarding from crypto, as well as businesses and institutions.



“This is a huge, Herculean effort,” he says. “It might not work.”



Santos says he would likely start the venture in Europe. He understands “how banks operate” on the continent, “whether it&#8217;s in the UK, France, or Switzerland.” The <a href="https://blockworks.co/news/european-parliament-mica-doesnt-touch">recently established MiCA framework</a> opens up more possibilities, he says.



<h2 class="wp-block-heading">JP Morgan quality</h2>



Podcast host Jason Yanowitz pauses and asks Santos, “How serious are you about this?”



He replies, “Pretty serious. I&#8217;ve been in ongoing discussions for the last three months.”



Santos says he would hire executives from both crypto and traditional capital markets to run the show. “If Jamie Dimon doesn&#8217;t run for President of the United States,” Yanowitz smiles, “maybe go talk to him.”&nbsp;



Santos laughs, replying “someone like that, plus also someone in the <a href="https://blockworks.co/tag/regulation">regulatory policy</a> side that really understands crypto.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG5929329742" width="100%"></iframe>







The key to moving forward, Santos says, is to get a banking license, “and part of getting the license is having a good team.”



Yanowitz suggests buying a license from a distressed business as a shortcut, but Santos promptly shuts down the idea. “I want a clean slate and to make this splash because I&#8217;ve hired the top executives and a serious team.”



“I want <a href="https://blockworks.co/tag/jpmorgan">JP Morgan</a> quality,” he says, adding that he wants to build with “high quality, talented individuals” to dominate the market, starting in Europe and building out from there.



“Crypto deserves a good bank and a serious team.”



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‘Crypto Deserves a Good Bank’ — Investor Santos Says He’s Building It

Ben Strack

As Japanese banks get set to issue stablecoins under new legislation, the US’ lack of regulatory clarity in the segment is one hurdle blocking institutions in the country from doing the same.



Japan in June 2022 <a href="https://blockworks.co/news/japan-passes-legal-framework-for-stablecoins">passed a legal framework for stablecoins</a>, which took effect Thursday.&nbsp;



The law requires that stablecoins — typically backed by one or more reserve assets — must be pegged to the yen or another legal tender and guarantee redemption to the holder at face value. It also confines the issuance of stablecoins to licensed financial institutions, such as registered banks, money transfer agents and trust companies.



The country’s step to bridge the gap between TradFi and DeFi with this initiative will benefit everyone in the long run, said David Tawil, co-founder of crypto fund ProChain Capital.



“In the US, most depositors, individual and business, have the benefit of free [automated clearing house] transfers intra-national,” he told Blockworks. “But, Japan’s initiative is a first step toward international frictionless, free money transfers.”



Updating from decades-old payment systems to cheaper and faster distributed ledger technology will always be a win for the customer, according to Jeff Embry, managing partner at crypto hedge fund Globe 3 Capital.



“The key will be making sure these stablecoins utilize a trustless, immutable and transparent blockchain versus being in control of one bank or one government like a CBDC would,” Embry added.



Tokyo-based GU Technologies in March <a href="https://prtimes.jp/main/html/rd/p/000000019.000083257.html" target="_blank" rel="noreferrer noopener">launched</a> a public blockchain — called Japan Open Chain — as a way to allow three Japanese financial institutions to experiment with issuing stablecoins complying with the country’s laws. The stablecoins would be compatible with Ethereum wallets via Metamask, for example.



Embry said that if Japanese banks only look to create their own stablecoins, the stablecoin ecosystem will struggle.&nbsp;



“We like to see stablecoins originate outside of the bank ecosystem bubble, as that is where true, immutable, transparent stablecoin innovation and adoption will prosper,” the Globe 3 Capital executive noted.



<h2 class="wp-block-heading">What would it take for US banks to issue stablecoins?</h2>



While regulations would be key for US banks to issue stablecoins, proposed bills on this subject <a href="https://blockworks.co/news/house-stablecoin-crypto-offshore">remain in flux</a>.&nbsp;



<a href="https://blockworks.co/news/house-hearings-deepening-party-divide">Recent hearings</a> by the House Financial Services and Agriculture committees show crypto regulation could be two or three years off, according to Compass Point Research &amp; Trading analysts Chase White and Joe Flynn.&nbsp;



“What we saw in these hearings is that members of Congress do not agree intraparty, much less interparty, on the basic tenets of even stablecoin legislation, which is seen by many observers as low-hanging fruit relative to comprehensive crypto legislation,” White and Flynn wrote in a research note last week.&nbsp;



Meanwhile, comments from regulators seem to contradict one another amid <a href="https://blockworks.co/news/house-grapples-with-stablecoins">a war to regulate the crypto space</a>. CFTC Chairman Rostin Behnam said in March stablecoins such as tether (<a href="https://blockworks.co/tag/usdt" target="_blank" rel="noreferrer noopener">USDT</a>) could be considered commodities, while SEC chairman Gary Gensler has claimed every crypto asset, besides bitcoin, could be a security.



Aside from a lack of movement and clarity from legislators and regulators, stablecoin adoption might be slow for big US banks who want customers to continue paying wiring fees.



“Banks are slow to adopt because they are the middlemen that blockchain eliminates,” Embry said. “Once customers see the huge benefits of using stablecoins the demand for them will be so great the banks won’t have a choice but to adopt them.”



JPMorgan offers JPM Coin, a permissioned payment rail and deposit account ledger for clients to transfer US dollars held with JPMorgan within the bank’s system. But Embry called the system more of a tool for clients than a true open-sourced blockchain stablecoin.



​​JPMorgan and consulting firm Oliver Wyman said in a joint <a href="https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2023/feb/oliver-wyman-jp--morgan-deposit-tokens-report-final.pdf" target="_blank" rel="noreferrer noopener">study</a> published earlier this year that <a href="https://blockworks.co/news/deposit-tokens-stablecoins-defi-jpmorgan">using bank-issued deposit tokens</a> to transfer value across chains is safer than using stablecoins.



Similar to his wish for Japanese institutions, Embry said he hopes US banks ultimately adopt stablecoins from third-party innovators rather than creating their own.&nbsp;



Tether’s stablecoin market capitalization <a href="https://blockworks.co/news/usdt-market-share-all-time-high">has surged in recent months</a> — standing at nearly $83.3 billion on Thursday. <a href="https://blockworks.co/news/circle-usdc-tether-competition">The market cap of competing stablecoin USD Coin</a> (USDC) was just below $29 billion.&nbsp;



“I think at some point, some country or countries around the world are going to lap us on this, and that’s when we’re going to get into gear here,” Tawil said of US stablecoin adoption. “We don’t do anything in this country until we’re under threat. Debt ceiling, case and point.”



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Japan’s New Stablecoin Framework Could Spur US To Act

Samantha Yap

<figure class="wp-block-table is-style-stripes"><table><tbody><tr><td>This is part two of our three part series on communication in cryptocurrency, touching on what Web3 does well — and what Web3 does not so well — in communicating its messages to the wider world. You can find part one on <a href="https://blockworks.co/news/web3-communication-jargon" target="_blank" rel="noreferrer noopener">Web3 language barriers here</a>, and part three on <a href="https://blockworks.co/news/cryptocurrency-traditional-finance" target="_blank" rel="noreferrer noopener">crypto&#8217;s cultural foundations here</a>.</td></tr></tbody></table></figure>



It’s time we learned our lesson: Without effective communication, a crypto project will struggle to gain the trust of the market. &nbsp;



Earlier this year, Silicon Valley Bank collapsed as a direct result of a breakdown in communication. This led to the biggest US banking crisis since 2008, which expanded even to crypto, causing Circle’s stablecoin to temporarily depeg. We had already been taught a valuable lesson last year by FTX’s Sam Bankman-Fried on how not to communicate during a crisis. It took a short Twitter exchange between Bankman-Fried and Binance’s CZ to spark uncertainty around the internal health of the FTX balance sheet, which eventually snowballed into the collapse of the FTX empire.



Trust is an invaluable asset — a founder’s ability to communicate effectively during a crisis can either make or break a project in the face of adverse market conditions.&nbsp;



Crypto cannot afford another communication breakdown that might set off any more bank runs.



<h2 class="wp-block-heading">Communication matters</h2>



When fear, uncertainty and doubt ripple through crypto markets, many look to founders for reassurance.&nbsp;



Without proactive, strategic communication, uncertainty in the market may then translate into uncertainty in a project.&nbsp;



Because without being clear and transparent about internal happenings, customers are only going to want to know one thing when crises arise: Where is my money? And financial institutions often mistakenly defer to discussing numbers first before considering the delivery and tone of the message.&nbsp;



In SVB’s case, their March 8 <a href="https://ir.svb.com/news-and-research/news/news-details/2023/SVB-Financial-Group-Announces-Proposed-Offerings-of-Common-Stock-and-Mandatory-Convertible-Preferred-Stock/default.aspx">press release</a> regarding their new capital raise omitted the reason for needing to raise capital. It spat out numbers and offered no real insight into the business’s well-being. Had the bank been more transparent and offered more <a href="https://twitter.com/lulumeservey/status/1634232322693144576">clarity</a>, we may not have seen the biggest financial crisis since 2008.



In Web3, the survival of a project depends just the same on the community&#8217;s perception of what is important. Projects should consider giving their stakeholders a fuller picture of the story that reassures and highlights how they’re going to move forward, regardless of whose fault the crisis is.&nbsp;



Web3 means that the community has a stake and can vote for and against certain decisions in projects. This influence over a project’s success means that proactively keeping the community in the loop is necessary.



<h2 class="wp-block-heading">A crisis communication plan is a risk management plan</h2>



Having a crisis communication plan is the non-tangible layer of security that projects don’t realize they need until something goes awry.&nbsp;



The Euler Finance hack back in March was the biggest crypto hack yet in 2023. With over $200 million taken, the flash loan attack left users desperate for answers. But when news of the hack broke, Euler didn’t have a clear crisis comms plan.&nbsp;



In an initial <a href="https://twitter.com/eulerfinance/status/1635218198042918918?s=20">tweet</a>, the project alerted its users that a hack had happened — but their message lacked clarity. Euler missed sharing precautionary instructions with users as well as highlighting what this hack meant for their funds. Their <a href="https://twitter.com/eulerfinance/status/1635431726364147712?s=2">follow-up</a> included more information on what went wrong —&nbsp;but again failed to address the community’s worries and did not detail plans to make users whole.&nbsp;



<a href="https://blockworks.co/news/euler-bounty-defi-flash-loan-attack" target="_blank" rel="noreferrer noopener">Euler Finance</a> has since successfully <a href="https://twitter.com/eulerfinance/status/1643269155116945409?s=20">recovered</a> the funds, which is great (if unexpected) news. But even the recovery statement — which told the community about the pretty darn positive update that all $200 million had been returned —&nbsp;lacked an empathetic tone of voice or any insight into how the protocol would move forward from this situation. It was to the point and direct, which was certainly practical, but it could have represented its community spirit, ethos and values better.&nbsp;



If leaders and projects in crypto want to survive and thrive in this volatile market, having an effective communications plan and strategy should already be a priority. We’re long past the days when the crypto industry was small enough where a foot-in-mouth tweet could just be laughed off or forgotten due to short memories — crisis communication matters, and poor communication, even if unintended, can no longer be excused. The tools are at your fingertips — use them.



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<div class="wp-block-post-author-biography">Samantha Yap is the founder and CEO of YAP Global, a PR and communications consultancy firm specializing in cryptocurrency, decentralized finance (DeFi), and Web3. She’s a pioneer in the crypto PR field and a key crypto “translator.”Samantha also hosts a podcast series on ‘The Story of Money by YAP Cast. Prior to this, Samantha worked as a broadcast journalist and producer for Channel NewsAsia Singapore and gained extensive international journalism experience across various countries.
</div>


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Crypto Can’t Afford Another Communication Crisis

Katherine Ross

Silvergate said that it would lay off approximately 230 employees. 



In an SEC filing dated May 12, the company said the layoffs would leave approximately 80 employees at Silvergate to finish liquidating the bank.&nbsp;



“Additional incremental reductions in headcount are expected to occur on each of June 30, 2023, August 30, 2023 and November 30, 2023 or later,” the <a href="https://www.sec.gov/Archives/edgar/data/1312109/000095015723000471/form8-k.htm">filing</a> said.&nbsp;



The 80 remaining employees will “focus on implementing the Bank Liquidation, preserving the residual value of the Company’s assets and addressing the regulatory and other inquiries and investigations that are pending with respect to the Company and the Bank.”



According to Pitchbook, <a href="https://blockworks.co/tag/silvergate">Silvergate</a> had approximately 400 employees as of 2022.&nbsp;



In January, the company announced that it was <a href="https://blockworks.co/news/silvergate-stock-plummets-45-on-major-staff-cuts-massive-withdrawals">cutting 200 employees</a>, or 40% of its workforce.&nbsp;



Following the job cuts, in March, Silvergate announced its intent to <a href="https://blockworks.co/news/silvergate-intends-wind-down-operations">“wind down operations”</a> and voluntarily started liquidating the bank.&nbsp;



It also promised a “full repayment of all deposits.”



The decision to shut down was made just two months after earnings revealed a $1 billion fourth-quarter loss.&nbsp;



The crypto-friendly bank, <a href="https://blockworks.co/news/crypto-bank-silvergate-asked-to-detail-records-of-purported-ftx-ties">rumored to be FTX’s primary bank</a>, had faced customer withdrawals in the wake of the FTX crash.



The bank, however, managed to just miss the downturn in the banking sector which saw three US banks fail.



Silicon Valley Bank officially fell two days after Silvergate announced its liquidation, on March 10. The bank run that caused the Feds to step in for SVB also impacted Signature just days later. Then the domino effect caused First Republic Bank to fail.



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Silvergate Lays Off 230 Employees, Leaving 80 Remaining at Liquidated Bank

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 class="wp-block-heading">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 class="wp-block-heading">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 class="wp-block-heading">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 class="wp-block-heading">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

Sebastian Sinclair

Amid growing uncertainty in broader market sectors, namely banking, bellwether crypto bitcoin remains steadfast.



Bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) is up about 9% in the last 24 hours to $22,200, erasing last week’s losses when a $1,300 sell-off on Thursday had followed <a href="https://blockworks.co/news/crypto-market-ether-security-nyag">New York Attorney General Letitia James’ labeling</a> ether (<a href="https://blockworks.co/price/eth">ETH</a>) as a security.



James filed against Seychelles-headquartered exchange, KuCoin, on the grounds it violated securities laws through its provision of ether, luna and the TerraUSD stablecoin to investors in the state of New York.



Crypto’s total market capitalization has also jumped back above $1 trillion, rising 9.3% to $1.05 trillion after dipping below that level late Thursday evening, <a href="https://www.coingecko.com/en/global-charts" target="_blank" rel="noreferrer noopener">CoinGecko data shows</a>.



The recovery in digital assets comes as The Federal Reserve <a href="https://www.bloomberg.com/news/articles/2023-03-12/fed-flies-blind-on-monetary-policy-with-rising-risk-of-a-6-rate" target="_blank" rel="noreferrer noopener">faces challenges</a> in its attempt to tackle inflation without destabilizing the financial system or triggering a US-wide recession.



Policymakers are currently attempting to gauge inflationary tailwinds as they prepare for an important FOMC meeting this month. Despite implementing <a href="https://blockworks.co/news/rate-hikes-continue-fed-minutes-show">multiple interest-rate increases</a>, the economy has proved to be more resilient than previously thought.&nbsp;



An important meeting, slated for March 22, will decide whether to increase the rate by 50 basis points. According to <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html">CME FedWatch Tool</a>, markets are pricing in a more likely 25-point rise.&nbsp;



Others, like Goldman Sachs, now foresee a stall to ongoing rate hikes in light of the recent stress in the banking sector, <a href="https://www.reuters.com/markets/us/goldman-analysts-no-longer-expect-fed-rate-hike-march-after-svb-failure-2023-03-13/" target="_blank" rel="noreferrer noopener">Reuters reported</a> Sunday.



Investors have grown increasingly anxious about the state of the financial system following <a href="https://blockworks.co/news/silicon-valley-bank-meltdown-has-little-to-do-with-crypto">the downfall of Silicon Valley Bank (SVB)</a> on Friday. Major markets across the country closed lower on the day, with the S&amp;P 500 posting a 1.8% loss while the Dow Jones Industrial Average also shed 1% to 31,909.



The collapse of a major financial institution has been a concern for the broader financial system in the past because it led to a domino effect of financial losses and a loss of confidence, as seen amid the 2008 financial crisis.



US regulators took charge on Sunday and swiftly implemented <a href="https://blockworks.co/news/signature-silicon-valley-bank-made-whole">emergency measures</a> to contain the potential fallout from Silicon Valley Bank&#8217;s sudden collapse.



Assistance has been provided to uninsured depositors of both SVB while extra funding has been made available to the banking system.&nbsp;



Officials also confirmed the closure of Signature Bank, which serves as a key bank for crypto companies in New York. Depositors of both banks are expected to be fully reimbursed.



According to Arcana founder, Rich Falk-Wallace, the crypto market has shifted to pricing in an overall risk rally associated with a more dovish Fed policy resulting from SVB’s collapse and market contagion concerns.



“It is far from clear whether that rally is sustainable at this point,” he said. “There is also the more transient dynamic of Coinbase having closed Circle withdrawals over the weekend, which some believe has pushed demand from USDC into bitcoin while the gates remain up.”



Coinbase’s conversion of USDC to USD remained <a href="https://status.coinbase.com/incidents/8hsjp3g7lsc1" target="_blank" rel="noreferrer noopener">suspended</a> Monday at 8:00 am ET.

Crypto ‘Risk Rally’ Comes Despite Broader Contagion Concerns

Casey Wagner

US financial regulators joined forces again this week to make sure banks got the message: They need to take risks associated with crypto seriously.



But so far, no new requirements have been issued.&nbsp;



Firms have been put on notice that careful risk assessments need to happen, but the latest statement is in no way creating new policies, the Federal Reserve, Federal Deposit Insurance Company (FDIC) and the Office of the Comptroller of the Currency (OCC) said.&nbsp;



The new statement, issued Thursday, is intended to “remind banking organizations to apply existing risk management principles” when it comes to crypto-related activities.



Banks should consider “concentration and interconnectedness” across deposits and potential liquidity risks. Firms are also advised to complete “robust due diligence and ongoing monitoring” of all crypto activity.



Thursday’s statement is an update to the warning issued <a href="https://blockworks.co/news/crypto-poses-key-risks-to-banks-but-carry-on">by the same three groups in January</a>. The agencies are primarily concerned with volatility and liquidity risks on exchanges and with stablecoin reserves, the new <a href="https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20230223a1.pdf" target="_blank" rel="noreferrer noopener">statement</a> added, and banks need to take the proper precautions. 



Regulators said banks should not lend deposits made by crypto customers and should hold cash to back all deposits.



“One read of the follow-up is that it’s positive insofar that the regulators specifically clarify they aren’t banning banks from banking crypto,” Galaxy Digital analysts wrote in a note Friday. “This could be seen as slightly softening their prior guidance and genuinely providing a bit more clarity.”



On the other hand, the statement could simply be preemptive of future policy, analysts added. It’s no secret <a href="https://blockworks.co/news/senate-banking-hearing-on-crypto-crash">Congress</a> and the <a href="https://blockworks.co/news/sec-crypto-enforcement-actions-accelerate">SEC</a> are taking a harsher look at the industry, and it’s only a matter of time before banks have new guidelines.



<h2 class="wp-block-heading">Scrutiny of crypto access to the banking system heats up&nbsp;</h2>



In a <a href="https://blockworks.co/news/senate-banking-hearing-on-crypto-crash">Senate hearing earlier this month</a> to discuss recent turmoil in markets, witness Lee Reiners, policy director of the Duke Financial Economics Center, urged lawmakers to isolate digital assets from financial institutions.&nbsp;



“We should do everything we can to restrict crypto from entering the banking system,” Reiners said in his testimony.&nbsp;&nbsp;



Banks are starting to take the hint, too. Notoriously crypto-friendly Signature Bank dropped <a href="https://blockworks.co/news/signature-bank-limit-on-swift-transactions-with-binance-affects-few-users">long-term client Binance</a> last month and Custodia’s second bid for Fed supervision was unanimously <a href="https://www.federalreserve.gov/newsevents/pressreleases/orders20230223a.htm" target="_blank" rel="noreferrer noopener">denied</a> Thursday. 



Custodia is now suing the Fed Board and its Kansas City branch over the dispute.&nbsp;



“What matters is whether banks are actually being pressured or not, and there is some evidence they are,” Galaxy analysts said.&nbsp;



“Further, it matters whether the sum of the actions the banking regulators have taken has had an impact on bank’s risk tolerance frameworks, i.e., whether both banks that do and banks that do not provide services to the sector have sufficient clarity or are not otherwise dissuaded from providing services to the crypto sector.”



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Banks Should Back Deposits From Crypto Customers With Cash: US Agencies

Bessie Liu

<div id="highlights-block_6358312e18d07" class="highlights">
 <ul>
 <li>Recent trademark filings could imply that Western Union wants to launch its own virtual currency exchange and cryptocurrency token</li>
 <li>The financial services company has plans to expand offerings into managing and administering digital assets</li>
 </ul>
 
</div>



Western Union has filed crypto-related trademark applications with the United States Patent and Trademark Office, trademark attorney Mike Kondoudis <a href="https://twitter.com/KondoudisLaw/status/1584882175127613440" target="_blank" rel="noreferrer noopener">said</a>.&nbsp;



The <a href="https://tsdr.uspto.gov/#caseNumber=97641182&amp;caseSearchType=US_APPLICATION&amp;caseType=SERIAL_NO&amp;searchType=statusSearch" target="_blank" rel="noreferrer noopener">applications</a> made by Western Union imply that the company intends to launch its very own virtual currency exchange and cryptocurrency token. The financial services company also has plans to expand into managing and administering digital assets.



<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"><a href="https://twitter.com/hashtag/WesternUnion?src=hash&amp;ref_src=twsrc%5Etfw">#WesternUnion</a> has filed 3 trademark applications claiming plans for ▶️ Financial + Banking + Insurance ▶️ Virtual currency exchange + transfer ▶️ Commodity and Crypto trading + brokerage ▶️ Issuing tokens of value …and much more<a href="https://twitter.com/hashtag/Web3?src=hash&amp;ref_src=twsrc%5Etfw">#Web3</a> <a href="https://twitter.com/hashtag/Metaverse?src=hash&amp;ref_src=twsrc%5Etfw">#Metaverse</a> <a href="https://twitter.com/hashtag/Cryptocurrency?src=hash&amp;ref_src=twsrc%5Etfw">#Cryptocurrency</a> <a href="https://twitter.com/hashtag/NFT?src=hash&amp;ref_src=twsrc%5Etfw">#NFT</a> <a href="https://twitter.com/hashtag/DeFi?src=hash&amp;ref_src=twsrc%5Etfw">#DeFi</a> <a href="https://t.co/YvKysvj3mq">pic.twitter.com/YvKysvj3mq</a>&mdash; Mike Kondoudis (@KondoudisLaw) <a href="https://twitter.com/KondoudisLaw/status/1584882175127613440?ref_src=twsrc%5Etfw">October 25, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Until now, Western Union has been relatively cautious about entering blockchain technology.&nbsp;



In December 2018, former Western Union Global Money Transfer President Odilon Almeida <a href="https://www.westernunion.com/blog/en/blockchain/" target="_blank" rel="noreferrer noopener">said</a> adding cryptocurrencies as a customer option would be a big reach, as digital assets had not yet mastered governance, compliance and volatility and received global acceptance.



Added Almeida: “Cryptocurrency might become one more option for a way for assets to be exchanged between people and countries. If that happens, we would be ready to launch.”



It seems that now, four years later, the growing adoption of blockchain technology — alongside the increased competition in the international money transfer space — has finally pushed the financial services giant to tap crypto markets.&nbsp;



Earlier this year, centralized crypto exchange Coinbase had <a href="https://cms.blockworks.co/coinbase-launches-crypto-remittance-pilot-for-mexico/" target="_blank" rel="noreferrer noopener">begun trialing</a> a remittance program for recipients in Mexico, challenging the market dominated by Western Union.&nbsp;



Coinbase claimed its services were <a href="https://cms.blockworks.co/coinbase-launches-crypto-remittance-pilot-for-mexico/" target="_blank" rel="noreferrer noopener">significantly</a> cheaper than traditional cross-border payments and was looking to expand its services globally to the world’s 1.7 billion underbanked.



Even so, Western Union remains one of the <a href="https://www.globenewswire.com/en/news-release/2022/05/09/2438800/0/en/39-8-Billion-Global-Digital-Remittance-Market-Size-Share-Forecast-by-2028-Market-is-Fueled-by-Rising-Banking-Financial-Services-and-Insurance-Globally-Historic-Data-Industry-Emergi.html" target="_blank" rel="noreferrer noopener">biggest players </a>in the global remittance industry, and Almeida has held onto the belief that “[Western Union is] better positioned to benefit from the crypto-currency movement in the long-term than any start-up.”



“Western Union is already better equipped to solve for such variables because it already moves money across 130 currencies and devotes substantial resources to all of those three challenges,” he said.



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Western Union Trademark Filings Signal Crypto, Web3 Exploration

<div id="highlights-block_634ef6c1ef004" class="highlights">
 <ul>
 <li>Realization of blockchain technology’s uses cases has combined with “groundswell” of demand from bank clients, Fidelity Digital Asset Management executive says</li>
 <li>People likely more comfortable accessing digital assets through the bank they use, according to Bank of America managing director</li>
 </ul>
 
</div>



Banks have come around on crypto during the last year, Fidelity Digital Asset Management Head Chris Tyrer said, adding that the institutions are “the future access points” for the market.



Tyrer and other executives noted, during a Tuesday panel at Blockworks’ Digital Asset Summit in London, that despite a growing demand for crypto among institutions’ clients, more regulatory clarity is needed before most banks jump fully into the segment.


<div class="wp-block-image">
<figure class="alignright size-medium"><img decoding="async" loading="lazy" width="300" height="300" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Chris-Tyrer-300x300.jpg" alt="" class="wp-image-6883" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Chris-Tyrer-300x300.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Chris-Tyrer-300x300.jpg?w=150 150w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Chris-Tyrer-300x300.jpg?w=257 257w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Chris-Tyrer-300x300.jpg?w=261 261w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Chris-Tyrer-300x300.jpg?w=219 219w, https://blockworks-co.imgix.net/wp-content/uploads/2021/08/Chris-Tyrer-300x300.jpg?w=80 80w" sizes="(max-width: 300px) 100vw, 300px" /><figcaption>Fidelity&#8217;s Chris Tyrer</figcaption></figure></div>


Conversations have shifted in the last 12 months from blockchain and distributed ledger technology to the metaverse, Web3 and creator economies, Tyrer said.&nbsp;



“People have sort of realized what this technology enables, where it’s going and what the future state is and are much clearer about the direction of travel to get there,” he added. “I think that, in and of itself, has sort of solidified the investment thesis…and there’s been a groundswell of demand coming through the banks from their traditional client bases as well.”



<h3 class="wp-block-heading">TradFi and crypto merging</h3>



<a href="https://cms.blockworks.co/bny-mellon-moves-to-let-institutions-hold-bitcoin-ether/" target="_blank" rel="noreferrer noopener">BNY Mellon revealed</a> last week that some of its institutional customers would be able to hold and transfer bitcoin and ether on its new crypto custody platform, which is available in the US. More recently, <a href="https://cms.blockworks.co/new-mastercard-program-looks-to-offer-crypto-capabilities-to-banks/" target="_blank" rel="noreferrer noopener">Mastercard unveiled</a> on Monday an upcoming program that is set to help banks and financial tech companies gain access to buy, hold and sell certain cryptoassets.&nbsp;



Roughly two-thirds of respondents of Mastercard’s <a href="https://www.mastercard.com/news/perspectives/2022/digital-payment-landscape-2022/" target="_blank" rel="noreferrer noopener">2022 New Payments Index</a> — published in June — reported a preference for their current financial institution to offer crypto-related services.



Alexey Demyanov, a managing director at Bank of America, said during the panel that people often want to further the relationship with a bank they trust rather than moving business elsewhere.



“As much as the whole idea is to remove trust in a central party or trust in an intermediary, it is efficient, convenient and safe to add a next relationship…with the same institution,” he said.&nbsp;



Panelists noted that the worlds of traditional finance and disruptive blockchain technology are set to inevitably meet and become interwoven over time.&nbsp;



Following <a href="https://cms.blockworks.co/3ac-files-for-bankruptcy-as-co-founders-location-unknown/" target="_blank" rel="noreferrer noopener">the collapse of Three Arrows Capital</a> and others earlier this year, Previn Singh, head of Credit Suisse’s Distributed Ledger Technology Centre of Competency, said capital liquidity buffers, for example, might have come in handy for some of those players.&nbsp;&nbsp;



“I think there’s this slightly cartoonish picture painted in regards to competition where it’s TradFi versus DeFi and never the two shall meet,” Singh said. “I’m really starting to think that will never be the case — there’s the best of both worlds that you can use.”



<h3 class="wp-block-heading">Regulation will be key</h3>



Executives on the panel noted that while venture-capital-funded financial tech companies, for example, might be able to take more risks by moving into a mostly unregulated space, the bar for banks and large asset managers is much higher.



<a href="https://cms.blockworks.co/european-crypto-regulations-enter-final-phase/" target="_blank" rel="noreferrer noopener">European lawmakers last week voted</a> in favor of the Markets in Crypto Assets bill (MiCA) that is slated to introduce provisions on supervision, consumer protection and environmental safeguards for cryptoassets. The laws are set to come into effect in 2024.



Meanwhile, the US is still working on how best to regulate the space. <a href="https://cms.blockworks.co/biden-signs-crypto-executive-order-promoting-responsible-innovation/" target="_blank" rel="noreferrer noopener">President Biden signed an executive order</a> in March tasking government agencies with weighing the risks and potential for digital assets. The White House <a href="https://cms.blockworks.co/white-houses-latest-crypto-framework-lacks-clarity-some-say/" target="_blank" rel="noreferrer noopener">published a crypto framework</a> last month that calls for further study around issues such as central bank digital currencies (CBDCs), DeFi and NFTs.&nbsp;



“Until there is regulation, I think many of the big banks will probably not touch it, but there are other areas around this space that we can definitely be looking at and that we are looking at,” Rita Martins, head of fintech partnerships at HSBC, said during the panel.



London-based financial services titan <a href="https://cms.blockworks.co/hsbc-buys-virtual-real-estate-in-sandbox-metaverse/" target="_blank" rel="noreferrer noopener">HSBC acquired virtual real estate</a> in The Sandbox earlier this year as part of a larger partnership with the metaverse to engage with sports, esports and gaming fans.&nbsp;



“It’s almost like we moved from the technology side to more around the experiments and what are the new experiments that we could give to the customers within this space,” Martins said.&nbsp;&nbsp;&nbsp;



<h3 class="wp-block-heading">Moves by BNY Mellon, Mastercard bullish for space</h3>



Despite regulation still needing to be sorted out, BNY Mellon and Mastercard’s latest announcements signal that large institutions are getting prepared to delve deeper into the crypto space.



Serhii Zhdanov, CEO of crypto exchange EXMO, called Mastercard’s upcoming program a “logical move,” adding that the payments giant understands that crypto could outgrow its existing industry.&nbsp;



“As both Mastercard and Visa have been working with crypto for years now, their processes are already in place and have been sufficiently tested,” Zhdanov told Blockworks in an email. “For the banks, it’s a no-brainer if Mastercard says, ‘We take compliance issues.’ I expect crypto will be a part of every bank’s product line soon.”



Crypto was until recently viewed as “antagonistic” for the traditional banking and payments industries, according to Hugo Feiler, CEO of blockchain protocol Minima.&nbsp;



“Now, integrating them with mainstream payment mechanisms will make it easier for those holding crypto to utilize it and break down the barriers between the crypto and TradFi systems,” he said.



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Banks Are Future Access Points for Crypto Market, Execs Say

<div id="highlights-block_62f1b0aa6d69c" class="highlights">
 <ul>
 <li>The pilot project is expected to take one year and will invite industry participants to develop specific use cases</li>
 <li>Australia will join a growing list of other countries exploring CBDCs at the pilot stage following the project&#8217;s completion</li>
 </ul>
 
</div>



The Reserve Bank of Australia (RBA) said Monday it has teamed up with the Digital Finance Cooperative Research Centre (DFCRC) to begin exploring use cases for a retail central bank digital currency (CBDC).



Both parties will embark on a year-long research project encompassing the development of a &#8220;limited-scale&#8221; CBDC operating in a ring-fenced sandbox, according to a <a href="https://www.rba.gov.au/media-releases/2022/mr-22-23.html" target="_blank" rel="noreferrer noopener">statement</a>.



While extensive research has already been conducted on the viability of digital ledger technology in the country, the RBA and DFCRC said their project would further close knowledge gaps by exploring potential economic benefits.



DFCRC is a 10-year, 180 million australian dollar ($125.6 million) research program funded by the Australian Government, industry partners and universities via the country&#8217;s<a href="https://cooperativeresearch.org.au/cooperative-research/crc-program-australian-government/"> Cooperative Research Centres Program</a>.



Dr Andreas Furche, CEO of the DFCRC, said in a statement: &#8220;CBDC is no longer a question of technological feasibility. The key research questions now are what economic benefits a CBDC could enable, and how it could be designed to maximise those benefits.&#8221;



Australia&#8217;s digital dollar project, if it makes it past the research phase, would join a growing list of other countries running pilots, including France, China, Canada, South Africa and Ghana. 



Live CBDCs are rarer, with only The Bahamas&#8217; Sand Dollar and Jamaica&#8217;s JAM-DEX fully launched, according to <a href="https://cbdctracker.org/" target="_blank" rel="noreferrer noopener">CBDCTracker.org</a>.



For now, the project hopes to further understand some of the technological, legal and regulatory considerations associated with an Australian digital dollar while gauging demand.



A specific launch date for the project was not given. A spokesperson for the bank declined to comment and DFCRC did not immediately return requests for comment.



Interested industry participants will be invited to develop specific use cases showcasing how a CBDC could add value to payment and settlement services for both households and businesses, per the statement.



The RBA and the DFCRC will choose use cases to include in the potential CBDC pilot, the pair said.



The project&#8217;s findings on the viability and assessment of various use cases developed are to be compiled in a report to be published once the year is up.



A separate report is expected to be published in the &#8220;next few months&#8221; detailing the project&#8217;s objectives and approach in greater detail with further information on how industry participants will be able to engage, the pair said.



This article was updated at 4:31 am, ET with context throughout.



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RBA to Explore CBDC Use Cases in Australia via Research Pilot

<div id="highlights-block_62cd3f5c96f4f" class="highlights">
 <ul>
 <li>Portfolio manager Steve Russell said he believes banks with crypto and blockchain-related plans are currently oversold</li>
 <li>Fund has decreased positions in miners “significantly” since the beginning of the year</li>
 </ul>
 
</div>



Community banks and other financial services companies are not halting plans to delve deeper into the blockchain and crypto spaces despite ongoing volatility in the sector, according to co-portfolio manager of Emerald Mutual Funds’<a href="https://www.emeraldmutualfunds.com/emerald-finance-banking-innovation-fund" target="_blank" rel="noreferrer noopener"> Finance and Banking Innovation Fund</a> (HSSAX).



As funds with exposure to crypto-focused companies and others with plans in the space grapple with cryptoassets’ latest downturn, Steve Russell and his team have discovered finance firms looking to use distributed ledger tech for payments, support the Lightning Network or have a presence in the metaverse.&nbsp;&nbsp;



HSSAX launched in 1997 and had about $116 million in assets under management as of June 30. Russell noted that the fund targets banks that are lending to crypto or blockchain companies, or ones that are creating their own tokens.



It also focuses on banks using blockchain-based real time payments platform Tassat to offer customers instantaneous and secure payments. Customers Bank and Tassat <a href="https://www.customersbank.com/investor-relations/press-releases/press-release/6b0dbbb4-fa4c-4721-8b0c-3ace54fec043/" target="_blank" rel="noreferrer noopener">launched</a> the Customers Bank Instant Token (CBIT), on TassatPay last October, for example.



“Not all of them have necessarily turned their whole business plan towards utilizing distributed ledger technology or being involved in cryptocurrencies for payments, but are certainly aware of it and moving in that direction ahead of their peers,” Russell said of the companies in the portfolio.



The portfolio manager noted that the mutual fund’s objective makes it unique from many of the ETFs that focus primarily on the same crypto stocks, such as miners and exchanges. Though the fund holds such companies, Russell said, the firm has decreased its positions in miners “significantly” since the beginning of the year.



The Emerald Finance and Banking Innovation Fund’s <a href="https://www.emeraldmutualfunds.com/holdings/emerald-finance-banking-innovation-fund" target="_blank" rel="noreferrer noopener">top holdings</a>, as of May 31, were Customers Bancorp, Coastal Financial, Triumph Bancorp, Bancorp Inc. and Finwise Bancorp. 



It also had crypto-centric investments, including miners Marathon Digital Holdings and Riot Blockchain, Silvergate Capital, the Grayscale Bitcoin Trust (GBTC), Galaxy Digital, Coinbase, and Voyager Digital, which <a href="https://cms.blockworks.co/voyager-files-for-bankruptcy-days-after-freezing-withdrawals/" target="_blank" rel="noreferrer noopener">filed for Chapter 11 bankruptcy</a> last week after suspending trading and withdrawals on its network.



Though Russell declined to comment on specific companies, he noted that the continued fallout from the crash of TerraUSD (UST) and LUNA, as well as <a href="https://cms.blockworks.co/3ac-files-for-bankruptcy-as-co-founders-location-unknown/" target="_blank" rel="noreferrer noopener">Three Arrows Capital filing for bankruptcy</a>, will likely lead to the fund continuing to exit or adjust certain positions.



Though roughly 70% of the smaller community banks Russell and his team speak to do not have plans within, or even knowledge about, crypto or blockchain, many banks remain interested in exploring the space even as crypto market remains volatile. 



Russell expects more banks to get involved in blockchain for mortgage-related activities. Figure Lending and Apollo <a href="https://www.prnewswire.com/news-releases/figure-and-apollo-execute-mortgage-transactions-using-blockchain-technology-to-transfer-ownership-301504772.html" target="_blank" rel="noreferrer noopener">completed a transaction in March</a> involving the origination of digital mortgage loans and transfer of ownership via blockchain technology.



“They’re never going to be the leader in introducing technology,” he said of banks. “They want to follow somebody.”



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



Read on for more excerpts from Blockworks’ interview with Russell:&nbsp;



Blockworks: How does the current turmoil in crypto markets impact how you think about managing banks with indirect exposure to the sector? The crypto-focused firms?



Russell: Those companies that were just getting started in the space…they’re moving forward with their plans. The market reacts to a lot of these names as if their earnings are based off of the price of bitcoin, which has nothing to do with their earnings and how they generate revenue.



We think a lot of these banks have been oversold…so we think there are some attractive entry points into some of these names.



Obviously, something like the exchanges that are out there, those have traded down for good reason. The quarter-over-quarter and even month-over-month trading volumes, you’ve seen them down 30%. That’s going to obviously affect their bottom line, so as those fundamentals weaken, it makes sense that people sell those names.



But it does get to a point where you have to decide when you’re looking at your valuation to start slowly going back into those names because some of the valuations are very attractive.&nbsp;



Obviously the Three Arrows situation, what we’ve seen with Terra Luna and how much bitcoin was used as collateral to leverage that trade up in the market obviously has created fall-out for several firms across the board and created some bankruptcies and firms that will close. I don’t think we’ve seen the full results of how bad that is.



Blockworks: What about crypto miners? How are you evaluating them right now?



Russell: You’re going to have a shakeout here we believe over the next year or 18 months, closer to the halving in 2024 where it’s a decision of miners with better balance sheets and positioned strategically well on whether they acquire.



It’s an interesting time for miners and we think it’ll be a smaller amount of players that really end up coming out on the back end of this. It’s all about do you have your energy cost locked in? Can you finance this growth? Everyone put out these great growth numbers. Half of them are never going to come close to that.



It reminds me a lot of investing during the dot-com days. While there were a lot of losers during the dot-com bubble, there were certainly winners, and it was our job then to find more winners than losers.”



We thought the profitability would be deteriorating here for a little bit, so we’ll reduce those positions as necessary. Already there are a couple miners that have gotten to pretty attractive valuations and we may start to increase [exposure to those] a little bit. But we want to get a little more clarity on where we’re going with some of the pricing and profitability in the sector.



Blockworks: What sort of conversations are you having with banks?



Russell: They talk about their future exposure to the metaverse and wanting to have a presence in the metaverse. They talk about payments and utilizing distributed ledger technology. They talk about being able to offer trading to their clients on the institutional side as well as the retail side.



They talk about how transactions will be settling utilizing blockchain and distributed ledger technology. They’re aware of the Lightning Network and they talk about how they can become a part of providing that infrastructure to help the Lightning Network succeed.



Those discussions and that research we do is really key. It’s not like you’re just going to be able to look at someone’s 10-K [disclosure form] or someone’s quarterly report and say hey, these guys are focused on the space.



Blockworks:&nbsp; What sort of regulation do you have your eye on?



Russell: We’re always trying to go where we think the puck is going. We think the best way to get adoption in this sector of blockchain and cryptocurrencies comes with regulation. We think a lot of that regulation is going to be geared towards banks and financial services companies that already have regulators in place.



We think the first things banks understand are stablecoins. So if you get clarity on stablecoins, I think that these early adopters will roll out various payment products, accounts receivable, accounts payable products for their customers and their commercial industrial borrowers.



They’re already trying to understand <a href="https://www.frbservices.org/financial-services/fednow/about.html" target="_blank" rel="noreferrer noopener">FedNow</a>, but FedNow is not the technology that gets them to where stablecoins can. They understand payments and the need for efficient transactions, and then we think they’ll start to understand smart contracts that can utilize stablecoins and be able to implement frictionless transactions that can happen 24/7, 365. &nbsp;



Blockworks: As a fund that owns GBTC, what do you make of the SEC denying Grayscale’s attempt to convert its bitcoin trust into an ETF?



Russell: We try to be long-term investors with three- to five-year investment horizons. When I look at GBTC, I think it eventually becomes an ETF and the discount to [net asset value] is attractive. It’s like owning a closed-end fund. They always trade at a discount, so that’s not unusual in the space.



It would just be nice if the SEC was consistent with how they are examining a spot ETF for bitcoin with how they examine or look at proposals of spot ETFs for other commodities. If you said this is a commodity, which they have, then why isn’t it treated like any other spot ETF proposal for any other commodity?



This interview has been edited for length and clarity.



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Q&A: Community Banks Moving Forward With Crypto Plans Despite Downturn, Portfolio Manager Says

<div id="highlights-block_62983f2862235" class="highlights">
 <ul>
 <li>UnionBank has issued the country&#8217;s first blockchain-based digital peso bonds in a raise that generated $209 million</li>
 <li>The oversubscribed raise came in 11 times the size the bank had anticipated when it signalled its intention to raise at least 1 billion in digital peso bonds</li>
 </ul>
 
</div>



The UnionBank of the Philippines has raised P11 billion (US$209 million) after investors rallied behind the country’s first-ever blockchain-based peso bonds.



UnionBank&#8217;s digital bonds were issued through the digital registry and digital depository of the Philippine Depository &amp; Trust Corp., <a href="https://www.cnnphilippines.com/business/2022/6/2/UnionBank-digital-peso-bonds.html" target="_blank" rel="noreferrer noopener">local media reported</a> Thursday. The bonds were kept interoperable with the Philippine Dealing &amp; Exchange Corp fixed income market.



Singapore-based fintech company STACS was tapped to provide the blockchain-based digital securities trading infrastructure necessary to facilitate the offering. Meanwhile, HSBC and Standard Chartered were joint lead arrangers and book runners for the transaction.



The oversubscribed raise came in 11 times greater than the bank had anticipated when it signalled its intention to raise at least 1 billion pesos in its <a href="https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/union-bank-of-the-philippines-seeks-to-raise-1b-pesos-in-digital-bond-offering-70492212#:~:text=The%20Union%20Bank%20of%20the,a%20May%2023%20media%20release." target="_blank" rel="noreferrer noopener">digital peso bond offering</a> in May.



The publicly listed bank intends to use the funds to partially finance the acquisition of the domestic consumer banking business of global banking giant Citi. Late last year, UnionBank moved to acquire <a href="https://www.philstar.com/business/2021/12/24/2149751/unionbank-buys-citis-consumer-banking-business-philippines-p55-billion" target="_blank" rel="noreferrer noopener">Citi&#8217;s consumer banking business</a> for P55 billion (US$1 billion).



UnionBank treasurer and head of global markets Jose Emmanuel Hilado said the&nbsp;issuance represented a &#8220;building block&#8221; in the bank&#8217;s journey to embrace digitization and industry disruption, according to the reports.



In January, tech giant IBM and Swiss crypto custodian Metaco were selected by the bank to safeguard digital assets on its balance sheet. The crypto-friendly bank also joined a consortium of other domestic banks to use Visa&#8217;s blockchain-based payment platform back in February 2018.



The bonds contain a 1.5 year tenor with a fixed rate of 3.25% per annum and are listed for trading on the Philippine Dealing &amp; Exchange Corp marketplace.



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Philippines’ First Blockchain Digital Peso Bond Offering Raises $209M

<div id="highlights-block_6287d09d83de8" class="highlights">
 <ul>
 <li>Despite an &#8220;overwhelmingly positive&#8221; reception of the app&#8217;s crypto feature, CBA has walked back its decision, citing volatility following Terra&#8217;s collapse</li>
 <li>The bank had previously partnered with Gemini and Chainalysis to integrate its services to the bank&#8217;s native app</li>
 </ul>
 
</div>



Australia&#8217;s largest bank by total assets has shuttered the rollout of a pilot that had briefly allowed select users to make in-app crypto purchases.



According to a report by <a href="https://www.theguardian.com/australia-news/2022/may/19/commonwealth-bank-pauses-in-app-cryptocurrency-trading-after-market-turmoil" target="_blank" rel="noreferrer noopener">The Guardian</a> on Thursday, the Commonwealth Bank (CBA) has decided to pause the pilot and has given no timeframe for when the program will resume.



The bank became the <a href="https://www.commbank.com.au/articles/newsroom/2021/11/CBA-to-offer-crypto-services.html" target="_blank" rel="noreferrer noopener">first major financial institution</a> in the country to allow certain customers to make in-app purchases through the CommBank banking app in November. Customers had previously been allowed to make purchases of up to ten cryptocurrencies, including bitcoin and ether.



As part of the project, CBA partnered with Gemini to leverage its crypto exchange and custody service which was integrated into the app via APIs. Blockchain analytics firm Chainalysis also participated in the project, offering to assist the bank&#8217;s compliance teams monitoring for crypto crime.



Despite the pilot&#8217;s “<a href="https://cms.blockworks.co/commonwealth-bank-says-crypto-already-mainstream/" target="_blank" rel="noreferrer noopener">overwhelmingly positive</a>” reception and popularity, current market woes – including the disruption caused by <a href="https://cms.blockworks.co/terra-collapse-could-spell-end-for-algorithmic-stablecoins/" target="_blank" rel="noreferrer noopener">Terra</a> last week – have formed a major part of the bank&#8217;s decision to halt its crypto services.



Blockworks attempted to contact Chainalysis, Gemini and CBA but did not receive a reply by press time.



<blockquote class="wp-block-quote">“We want to continue to play a leading role in providing input into that and shaping the most appropriate regulatory outcome,” CBA&#8217;s chief Matt Comyn said in the report. “Our intention still, at this stage is to restart the pilot, but there is still a couple of things that we want to work through on a regulatory front to make sure that that is most appropriate.”</blockquote>



Comyn said at the time of the pilot&#8217;s launch that he believed his institution would play an &#8220;important role&#8221; in a bid to meet growing demand from roughly 900,000 customers keen to invest in the nascent asset class.



Australia is slowly driving forward with its crypto regulation having <a href="https://cms.blockworks.co/australia-seeks-licensing-of-crypto-exchanges-via-digital-services-act/" target="_blank" rel="noreferrer noopener">proposed legislation</a> to introduce a licensing regime as well as measures relating to custody, decentralized autonomous organizations (DAOs) and taxation. Given the country&#8217;s federal election on Friday – which may decide on an entirely new government – regulation for the budding market could very well be thrown into doubt.



Some regulators are attempting to head the matter off having <a href="https://cms.blockworks.co/australian-regulators-advance-countrys-crypto-rules-in-latest-guidance/" target="_blank" rel="noreferrer noopener">issued guidance</a> to businesses dealing with crypto assets late last month. Two weeks earlier, chair of the Australian Prudential Regulation Authority Wayne Byres also cautioned banks to <a href="https://cms.blockworks.co/australian-regulator-asks-banks-to-proceed-with-care-over-crypto/" target="_blank" rel="noreferrer noopener">proceed with care</a> – despite crypto not being the only industry to be suffering headwinds caused by economies worldwide grinding to a halt.



Global equities markets continue to face significant sell-side pressure caused by macroeconomic factors including rising inflation and lifting of interest rates designed to combat it. Crypto has been unable to avoid that contagion having suffered significant <a href="https://cms.blockworks.co/bitcoin-hit-hard-by-inflation-fears-suffers-worst-daily-drop-since-january/" target="_blank" rel="noreferrer noopener">sell-offs</a> in recent months.



“As events of the last week have reinforced, it is clearly a very volatile sector that remains an enormous amount of interest,&#8221; Comyn said referencing the fallout from the Terra saga. &#8220;But alongside that volatility&#8230;you can see there is a lot of interest from regulators and people thinking about the best way to regulate that.&#8221;



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Top Australian Bank Ceases Crypto Pilot Amid Market Downturn: Report

<div id="highlights-block_623bb0bddb220" class="highlights">
 <ul>
 <li>Australia&#8217;s ANZ has minted $30 million worth of its bank-backed A$DC stablecoin in a national first</li>
 <li>The pilot transaction saw the coins settled by the bank into an Ethereum wallet held by Zerocap on behalf of Victor Smorgon Group</li>
 </ul>
 
</div>



Australia&#8217;s ANZ Bank has become the first major financial institution in the country to issue and execute payment of a stablecoin linked to the nation&#8217;s dollar.



Leveraging its Ethereum Virtual Machine (EVM) compatible smart contract deployed through the Fireblocks platform, ANZ <a href="https://media.anz.com/posts/2022/03/anz-completes-landmark-stablecoin-payment?adobe_mc=MCMID%3D56904523190478420204553646360351941254%7CMCORGID%3D67A216D751E567B20A490D4C%2540AdobeOrg%7CTS%3D1648077719" target="_blank" rel="noreferrer noopener">said Wednesday</a> it had successfully minted $30 million worth of its bank-backed A$DC stablecoin.



The bank worked with Fireblocks, Chainalysis and OpenZeppelin to create the &#8220;in-house purpose-built&#8221; stablecoin smart contract. ANZ said the coins were transferred between the family office and digital asset fund manager Zerocap before it was later redeemed back into fiat.



It marks the first time in the country that such an endeavour has been undertaken by an Australian bank.



Specifically, the bank acted on a request by Victor Smorgon Group — the late billionaire&#8217;s eponymous family office which was later settled into the office&#8217;s Ethereum wallet hosted atop custody infrastructure owned by Zerocap. The family office is a client of both the bank and Zerocap.



<blockquote class="wp-block-quote">“In this particular transaction it was 20 minutes end to end, including minting,&#8221; said Zerocap&#8217;s CEO Ryan McCall. &#8220;We ran tests beforehand which took longer as we carefully moved through each step and I would expect future transactions to be even shorter once there is a tested, repeatable process in place.“</blockquote>



The move allowed the family office to avoid having to pay high conversion fees between the Australian dollar-backed stablecoin and Circle&#8217;s USDC — a US dollar-backed stablecoin that Zerocap uses to make trades on the group&#8217;s behalf.



Given blockchain&#8217;s quick settlement times, both parties were able to significantly reduce the risk of slower transaction speeds often associated with traditional finance. 



<blockquote class="wp-block-quote">&#8220;Stablecoins are a new way for customers to transact and in this case was an efficient and direct way for Victor Smorgon Group to access Zerocap’s digital asset exchange and move funds&nbsp;across a decentralized network,&#8221; said ANZ Banking Services Lead Nigel Dobson in the release.</blockquote>



Amid a major <a href="https://cms.blockworks.co/australia-seeks-licensing-of-crypto-exchanges-via-digital-services-act/" target="_blank" rel="noreferrer noopener">pivot in policy</a> for digital assets down under, banks are now looking to get some skin in the game following years of fence-sitting. Australia&#8217;s largest financial institution, Commonwealth Bank, began offering its customers the ability to buy and sell crypto through its native app toward the end of last year.



Commbank’s Sophie Gilder, managing director of Blockchain and Digital Assets, said Monday the nascent asset class was &#8220;already mainstream&#8221; and that user uptake of those buying crypto through the app had been &#8220;<a href="https://cms.blockworks.co/commonwealth-bank-says-crypto-already-mainstream/" target="_blank" rel="noreferrer noopener">overwhelmingly positive</a>.&#8221;



The issuance of the country&#8217;s first bank-backed digital dollar follows calls by Australia&#8217;s Treasurer Josh&nbsp;Frydenberg for the country to begin exploring a central bank digital currency. 



While not yet a central part of the government&#8217;s financial package, the treasurer and the incumbent Liberal Party are hoping their sounding of the conch shell to crypto advocates around the country will be enough to lift them from a <a href="https://www.reuters.com/world/asia-pacific/australian-pm-morrisons-party-faces-shock-state-election-loss-2022-03-19/" target="_blank" rel="noreferrer noopener">predicted defeat</a> in the upcoming election in May.



Some question the truly decentralized nature behind some of the world&#8217;s largest institutions, offering alternatives to those currently provided by the private market. USDT, or tether, whose market cap surpassed $80 billion earlier this month, has continued to hold up <a href="https://cms.blockworks.co/hindenburg-research-targets-tether-with-1m-bounty-program/" target="_blank" rel="noreferrer noopener">despite long-term concerns</a> over the dollar backing of its reserves.



Still, those entering the crypto industry for the first time see the private issuance of stablecoins as a risk and prefer to defer to major institutions whose holdings, they say, can provide a more secure financial experience.



&#8220;If digital assets are going to become ubiquitous, consumers and institutions alike need safe rails, said McCall. &#8220;Take a look at Tether and the controversy surrounding that; would you rather transact in tether, or a bank-backed stablecoin?



&#8220;Also, decentralised systems aren&#8217;t going away; the future is multichain and the ecosystem will end up having substantial participation in both centralized and decentralized systems,&#8221; he said.



&#8220;The ideal outcome would be that investors can opt-in to whichever they choose.&#8221;



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