Ben Strack

Crypto firm SkyBridge urged the US Securities and Exchange Commission not to wait to approve the latest wave of spot bitcoin ETFs. This stance counters the viewpoint presented by Grayscale Investments just a month ago.



Grayscale sued the SEC last year for not allowing its Bitcoin Trust (GBTC) to convert to an ETF, and a decision in that suit is imminent. The firm noted in a July 27 letter to the SEC that approving some spot bitcoin ETF proposals before others would give those products an <a href="https://blockworks.co/news/grayscale-sec-advantage">“unfairly discriminatory and prejudicial first-mover advantage.”</a>



<a href="https://blockworks.co/tag/skybridge-capital">SkyBridge</a>, an investment company led by former White House communications director <a href="https://blockworks.co/tag/anthony-scaramucci">Anthony Scaramucci</a>, countered that premise in a Monday letter to the US securities regulator.



“SkyBridge disagrees in the strongest terms with Grayscale’s assertion that the commission may hold up applications that meet the commission’s standards so that other market participants can catch up,” wrote Rajib Chanda, a lawyer representing the firm.



SkyBridge previously sought to launch its own bitcoin ETF with First Trust Advisors — a fund ultimately denied by the <a href="https://blockworks.co/tag/sec">SEC</a> in January 2022. The firm was not among the latest wave of filers, which include <a href="https://blockworks.co/news/sec-delays-bitcoin-etf-decision">Ark Invest and 21Shares</a>, as well as <a href="https://blockworks.co/news/blackrock-clout-bitcoin-etf-approval">a proposal by asset management giant BlackRock</a>.&nbsp;&nbsp;



Additional spot bitcoin ETF proposals SkyBridge mentions in the <a href="https://twitter.com/Scaramucci/status/1691201124508848128/photo/1">letter</a> include ones by Valkyrie, VanEck, Fidelity, Invesco and WisdomTree.&nbsp;&nbsp;



Nasdaq, the exchange on which BlackRock’s bitcoin ETF would trade, said in a July SEC filing that it “reached an agreement on terms with Coinbase” to enter into a surveillance-sharing agreement (SSA). The listing exchanges working with other fund groups on bitcoin ETF proposals, such as Cboe, <a href="https://blockworks.co/news/cboe-reached-agreement-coinbase">added similar language to their own applications</a>.



Read more: <a href="https://blockworks.co/news/surveillance-sharing-bitcoin-etf">How ‘surveillance-sharing’ is designed to deter bitcoin ETF manipulation</a>&nbsp;



Grayscale said in its July letter that while it supports all progress made on the <a href="https://blockworks.co/tag/bitcoin-etf">spot bitcoin ETF</a> front, it does not believe the new SSAs should be “a silver bullet” to get such products approved. But SkyBridge argued the agreements address the SEC’s market manipulation concerns.&nbsp;



“An executed surveillance sharing agreement with Coinbase, Inc., in SkyBridge’s view, adequately addresses those concerns,” Chanda wrote. “As such, we encourage timely approval of applications with executed surveillance sharing agreements.”



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SkyBridge ‘disagrees in the strongest terms’ with Grayscale on bitcoin ETF approval timeline

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_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_61dc74a1aad2d" class="highlights">
 <ul>
 <li>Blockchain.com wants to be one of the biggest financial institutions in Latin America, Chief Business Officer Lane Kasselman said</li>
 <li>A large traditional bank buying Blockchain.com or other large crypto firms is unlikely in the current regulatory environment, the executive argued</li>
 </ul>
 
</div>



Blockchain.com made several notable acquisitions last year and is looking at more such opportunities to expand across several emerging markets.&nbsp;



The <a href="http://blockchain.com" target="_blank" rel="noreferrer noopener">London-based crypto firm</a>, which offers users the ability to buy, sell and trade crypto, has 80 million wallets across 200 countries. Its $300 million investment round in March gave the company a $5.2 billion valuation.



Blockchain.com is focused on building its footprint across regions such as Latin America, Africa and Eastern Europe, Blockchain.com Chief Business Officer Lane Kasselman told Blockworks in an interview.&nbsp;&nbsp;



“We are looking at markets where the customers need crypto, because they’re much more sticky, they don’t react the same way to market volatility and they’re much more interested in a wide variety of products and services,” he explained.



Blockchain.com announced in November its acquisition of SeSocio, an Argentina-based crypto company that also has a presence in Brazil, Chile, Colombia, and Mexico. The addition of SeSocio’s 100 employees brought Blockchain.com’s global headcount to roughly 400.&nbsp;



While the acquisition made Blockchain.com the largest crypto company in the region, Kasselman said, it is now looking to become one of the biggest financial institutions in Latin America.



“Companies that try to parachute in and build their business in countries where they don’t have a significant staff presence often times stumble,” the chief business officer noted.



<blockquote class="wp-block-quote">“The real strategy is acquiring somebody who’s already one of the market leaders and working through them to really grow your business.”</blockquote>



Kasselman noted that there are more than 200 million unbanked individuals in Latin America, which he said is often due to unsafe or inaccessible banking systems. Crypto has helped solve that issue and has opened them up to a digital ecosystem.&nbsp;&nbsp;



“Maybe they’re looking for a safe store of value,” Kasselman said. “But they’re also looking for access to Netflix and Spotify, and so their crypto wallet or blockchain wallet becomes an onramp.”



The executive said that Blockchain.com is not currently focused on building its presence in India due to an uncertain regulatory environment in the country.&nbsp;&nbsp;&nbsp;



<h3 class="wp-block-heading">Product outlook for Blockchain.com</h3>



Kasselman noted that the first financial services accounts for some younger investors, such as recent college graduates, is a crypto wallet. He added that the demand for such customers, and others, is often around crypto offerings that mirror more traditional financial services.



The company launched margin trading on its exchange in October to allow users to access margin with up to five times leverage in the bitcoin-to-US dollar and ether-to-USD trading pairs in more than 150 countries. It has also set up a waiting list for debit cards, Kasselman said. 



Different markets have different needs, he added, noting that users in Latin America and Africa are more interested in seamless remittances to move value across borders, as well as less volatile tokens that may provide a safer store of value.



“Blockchain.com is less in the business of predicting what customers want and more in delivering to them exactly what they are asking for,” Kasselman explained.



<h3 class="wp-block-heading">Crypto M&amp;A more broadly</h3>



In addition to its purchase of SeSocio last year, Blockchain.com acquired artificial intelligence startup AiX last May to bolster its institutional business. The company also bought French consumer startup Storm Inc. and Magic Carpet, a machine learning and AI company, in October.&nbsp;



Mergers and acquisitions within the crypto sphere accelerated last year, a trend that <a href="https://cms.blockworks.co/what-could-crypto-ma-look-like-in-2022/" target="_blank" rel="noreferrer noopener">industry watchers have predicted</a> will continue in 2022. M&amp;A deals involving at least one company in the crypto sector totaled 169 in 2021, as of mid-December, compared to 59 deals in the year prior, according to data from M&amp;A advisory firm Architect Partners.&nbsp;



There is no shortage of ideas and teams within the crypto space, Kasselman explained, but many struggle to attract users.



<blockquote class="wp-block-quote">“Everyone wants to move fast in crypto, and it’s really hard to move fast unless you have access to a big customer account,” he said. “I think we’ll see a lot of rapid consolidation, especially if the market continues to be a little less hot.”</blockquote>



Bitcoin’s price was at about $41,300 at 1 p.m. ET, according to <a href="https://www.coingecko.com/en" target="_blank" rel="noreferrer noopener">CoinGecko</a>, a decrease of roughly 13% from seven days ago.&nbsp;



SkyBridge Capital Founder Anthony Scaramucci <a href="https://cms.blockworks.co/are-tradfi-and-crypto-set-for-an-ma-explosion/" target="_blank" rel="noreferrer noopener">previously said</a> he expects that a big bank frustrated by the growth of decentralized finance could buy a crypto firm such as Coinbase.&nbsp;



Though some banks have dabbled in crypto by offering clients indirect exposure to the asset class, Kasselman noted that such a transaction, or one involving a large traditional firm buying Blockchain.com, is unlikely in the current regulatory environment.



“I do think we are at the beginning of what is a two-year cycle of a permanent regulatory framework being established across the US and the EU, so it’ll look very different in a couple of years,” Kasselman said. “But right now it’s very hard for those sort of old, stoic, publicly traded companies to think about entering a space…that doesn’t really have clear rules.”

Blockchain.com Looking to Expand in Emerging Markets Through M&A

<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.”



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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.



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Polygon Trust, and Crypto Economy ETF Hit the Market

<div id="highlights-block_613f9c52ffd00" class="highlights">
 <ul>
 <li>UNLOX will initially comprise a BNPL solution, a digital asset wallet and commerce engine, and a collateralized art lending and fractionalization platform</li>
 <li>SkyBridge and NAX bring institutional infrastructure and commercial volume, respectively, to new initiative while Algorand provides the layer-1 protocol support</li>
 </ul>
 
</div>



A new partnership between <a href="https://www.skybridge.com">SkyBridge Capital</a> and <a href="https://www.naxgrp.com">NAX</a> is set to offer decentralized applications and institutional investment opportunities as part of an initiative using layer-1 protocol <a href="https://www.algorand.com/futurefi/">Algorand</a>.&nbsp;



The alliance will start with a fund between SkyBridge, NAX, and Algorand and an initiative called UNLOX. The fund, to be capped at $250 million, will seek to provide institutions with access to unique decentralized finance opportunities.



With SkyBridge founder Anthony Scaramucci as its chairman, UNLOX will become a core infrastructure to launch large-scale decentralized finance (DeFi ventures), capital raising and a platform for institutions to securitize their assets on the blockchain.&nbsp;&nbsp;



SkyBridge is a $7 billion alternative asset manager with more than $600 million in crypto assets. Meanwhile, NAX, based in California, creates new markets and ecosystems around corporate assets from seed to securitization.



<blockquote class="wp-block-quote">“SkyBridge is choosing to partner with NAX because of the commercial infrastructure and volume that NAX brings to the initiative,” a SkyBridge spokesperson told Blockworks. “NAX functions as the catalyst that will enable UNLOX ventures to launch at scale by leveraging underutilized corporate assets from its market-leading industry partners.”</blockquote>



UNLOX will initially comprise a buy now pay later, or BNPL, solution, a digital asset wallet and commerce engine, and a collateralized art lending and fractionalization platform, the firms said in a release. NAX estimates that these will augment the user base of Algorand, which will be the protocol of UNLOX, with millions of new wallets by 2023.



Scaramucci called the protocol’s technology impressive in a statement and noted that his firm plans to bring Algorand to the forefront of regulated products, digital securities, currencies and payments.



A competitor of Ethereum and other <a href="https://cms.blockworks.co/competition-in-layer-1-space-continues-to-heat-up/">growing layer-1 protocols</a> such as Solana, Cardano and Avalanche, Algorand currently has more than 30,000 developers and about 800 organizations building on it.&nbsp;



“Algorand is one of the only layer-1s that can meet global financial transaction requirements, with primitives built directly into the protocol,” the SkyBridge spokesperson said. “Its founder and team are the best in the world at what they do.”



Silvio Micali, Algorand’s founder, designed the protocol to be forkless with high transactions per second, fast finality and security, the representative noted. Its fees are fixed at 0.001 ALGO per transaction, meaning no gas is required like in Ethereum, the firm added, and Algorand is also carbon-negative and Sharia-compliant.



Algorand Virtual Machine <a href="https://www.algorand.com/resources/algorand-announcements/june2021_protocolupgrade_avm">was released</a> in June in an effort to improve smart contract development and allow developers to create powerful digital apps while making blockchain application development more accessible.



NAX CEO Jeff Schumacher said in a statement that Algorand’s platform has “unlimited potential,&#8221; noting the arrival of AVM.&nbsp;



“The platform will continue to deliver performance enhancements and interoperability for the growing list of organizations and governments that are leveraging Algorand as the infrastructure for new economic models,” an Algorand spokesperson told Blockworks.



Algorand’s market capitalization, which stands at about $11.8 billion, was the 15th largest among coins as of 2:30 p.m. eastern on Monday afternoon, according to <a href="https://www.coingecko.com/en">CoinGecko</a>. The price of its native token ALGO was up to $2.28 at that time, which was up 73% from seven days ago, the data shows.



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