Welcome to The Wise Guy,
Where we take cryptocurrency seriously, but we also know how to have a good time.
That’s why we’ve curated the crème de la crème from not one, not two, but FIVE newsletters.
MilkRoad, Defiant, Messari, Bankless, and CoinDesk Node.
Defiant’s Top Story
Markets Erase Weekly Gains After SEC Delays Bitcoin ETF Decisions
Yesterday’s bearish market action erased the gains that came following a U.S. courts ruling against the SEC on Tuesday, with the combined crypto capitalization falling $40B in 24 hours. Despite the market volatility, Layer 2 networks are booming, with ZkSync closely trailing the Ethereum mainnet by 30-day transaction throughput.
In a surprising turn of events, the crypto markets witnessed a sharp decline, erasing the gains that were seen earlier in the week. Just two weeks ago, crypto asset prices had tumbled to their lowest level since Q1, indicating a downtrend.
Swift Could Support Interconnected CBDCs Via Chainlink
Swift, the major interbank settlements network, reported a successful pilot leveraging Chainlink’s technology to transfer CBDC tokens on an Ethereum testnet. Top financial institutions from around the world participated in the initiative, including BNY Melon, LLoyds Banking Group, BNP Paribas, and Australia and New Zealand Bank.
Despite the recent regulatory challenges faced by the crypto industry, various global institutions are actively exploring the potential of Central Bank Digital Currencies (CBDCs). In a recent development, Swift, a renowned interbank settlements network, conducted a pilot project utilizing Chainlink’s technology on an Ethereum testnet. The successful completion of the pilot involved participation from esteemed financial institutions such as BNY Melon, LLoyds Banking Group, BNP Paribas, and Australia and New Zealand Bank.
This news unfolds three months after the Bank of International Settlements published its findings from a pilot using Curve’s bonding curve to trade testnet CBDC tokens on the same network. The growing interest and experimentation with CBDCs signal a potential shift in the global financial landscape.
Starknet Foundation and Argent Form Startup Studio
Starknet, an emerging Ethereum L2, and Argent, a Starknet wallet provider, are joining forces to launch an incubator for web3 startups. Hito Studios, the new venture, will focus on helping new Starknet-based projects ship products and source funding.
Supporting new startups in the crypto space has always been a challenge, especially during bear markets when securing funding becomes even more arduous. However, Starknet and Argent aim to change this narrative by teaming up to create Hito Studios, an incubator specifically designed to nurture web3 startups. Hito Studios will provide crucial assistance to fledgling projects that are deploying on Starknet, offering valuable guidance, resources, and funding opportunities.
Messari’s Desk
In an exciting evolution of the Polygon ecosystem, Polygon Labs recently introduced Polygon 2.0, a strategic update aimed at further enhancing their platform. Over the past few weeks, Polygon Labs has been sharing detailed information about the various components within this evolving ecosystem.
Architecture: A Solid Foundation
The new framework of Polygon 2.0 is built upon four protocol layers that provide a strong foundation for the ecosystem. These layers include the Staking Layer, Interop Layer, Execution Layer, and Proving Layer. Each layer serves a specific purpose, contributing to the overall functionality and security of Polygon 2.0.
Tokenomics: Introducing POL
Polygon 2.0 brings forth a new native token called POL. This token introduces various enhancements to the ecosystem, particularly in terms of validator utility. In addition, Polygon Labs has opted for an inflationary model rather than the previous supply cap of 10 billion tokens. This shift in tokenomics aims to create a sustainable model that supports the growth of the ecosystem.
Governance: Empowering the Community
Polygon 2.0 emphasizes the importance of governance and decentralization. To achieve this, the platform will have three distinct governance pillars: Protocol Governance, System Smart Contract Governance, and Community Treasury Governance. These governance frameworks ensure that decisions and actions within the Polygon ecosystem are driven by the community, fostering a sense of ownership and inclusivity.
Introducing the Polygon Chain Development Kit
Building on the momentum of Polygon 2.0, Polygon Labs has now unveiled the Polygon Chain Development Kit (CDK). This release marks a significant milestone in the Polygon 2.0 vision and represents an evolution of previous components such as Polygon Edge and Supernets.
The CDK serves as an open-source development framework that enables the launch of ZK-L2 (Zero-Knowledge Layer 2) chains and facilitates the transition of existing L1 (Layer 1) solutions to L2. With the CDK, developers gain access to a powerful toolkit that offers a range of features and functionalities to customize their chains according to their specific requirements.
Bankless’ Desk
⚡Binance Faces Regulatory Challenges and Considers Exiting Russian Market
In the face of mounting regulatory scrutiny, Binance, the popular cryptocurrency exchange, is taking significant steps to mitigate potential backlash from regulators.
This week, Binance announced its decision to distance itself from the BUSD stablecoin issued by Paxos.
The issuance of new coins has already been halted after drawing regulatory attention. Moreover, Binance is contemplating exiting the Russian market after reports emerged suggesting that the exchange was being utilized by wealthy Russians to move their funds discreetly.
Binance finds itself at odds with regulators worldwide, particularly in the United States, where it is being viewed as a primary target. The exchange is currently engaged in multiple regulatory battles across various jurisdictions and is reportedly anticipated to face legal action from the U.S. Department of Justice.
Uniswap Triumphs in Court Battle
While the victory of Grayscale against the SEC dominated the headlines in the court’s domain this week, Uniswap also secured a significant win as a New York judge dismissed an investor lawsuit against the decentralized exchange. The investors held the platform responsible for listing and trading scam tokens, alleging direct harm caused by Uniswap.
The judge ruled that Uniswap cannot be held accountable for every asset listed on its platform. Instead, the true defendants should be the parties responsible for deploying the scam tokens. Drawing an analogy, the judge compared the situation to holding payment platforms like Venmo or Zelle responsible for illicit transactions conducted using their service.
Digital Currency Group Reaches Agreement in Genesis Bankruptcy Case
Digital Currency Group (DCG) announced a breakthrough in its ongoing bankruptcy case involving Genesis, successfully reaching an agreement with Genesis creditors to settle the claims. According to CoinDesk, the proposed resolution could result in unsecured creditors recovering 70%-90% in USD equivalent, while in-kind recovery could range from 65%-90% depending on the denomination of digital assets.
DCG has faced challenging circumstances in 2023, but the Genesis deal, along with the completion of the CoinDesk sale, presents potential opportunities for the company to navigate the path ahead.
BitBoy Controversy: YouTuber Removed From His Own Company
Popular YouTuber BitBoy, also known as Ben Armstrong, has been removed from his own company, BitBoy Crypto, by BJ Investment Holdings, the parent company.
The removal is attributed to allegations of substance abuse issues that have purportedly caused multiple problems for the company.
Armstrong responded to the allegations in a statement, deeming them “false” and “diabolical.”
SEC Faces Legal Setback in Grayscale Case
In a significant blow to the U.S. Securities and Exchange Commission (SEC), an Appeals Court delivered another defeat to the regulatory body.
Grayscale, the cryptocurrency asset management firm, had challenged the SEC’s rejection of its application to convert its GBTC product into an exchange-traded fund (ETF). The Appeals Court sided with Grayscale, describing the SEC’s denial as “arbitrary” and “capricious.” Although the ruling does not mandate immediate approval of the application, it does require the SEC to review it again, forbidding denial on the same grounds.
This development caused a stir in the market, leading to a temporary surge in prices and a 14% increase in Coinbase stock. Market analysts speculate that this ruling brings the approval of a spot Bitcoin ETF closer, despite the SEC postponing decisions on similar applications from major entities like BlackRock and Fidelity. The optimism stems from a growing belief that the SEC will not be able to resist the demand for a spot Bitcoin ETF for much longer.
Milk Road’s Fed Analysis
Fresh Start, Fresh Calendar: Welcome to September
We’ve reached the start of a brand new month, a clean slate ready to be written upon. But before we get too excited, it’s important to acknowledge that September hasn’t been the friendliest month for the crypto world in recent years.
So, let’s dive into some not-so-fun facts that might have you feeling a little cautious about the days ahead.
SeptemBear: The Unwelcome Visitor
September hasn’t bestowed much green upon the crypto market in recent times. In fact, Bitcoin (BTC) hasn’t witnessed a positive September since 2016, while Ethereum (ETH) last saw green in 2019.
On average, Bitcoin experiences a dip of around 6%, and Ethereum around 9% during this treacherous month. In simpler terms, it’s open season for the bears who are on the prowl for opportunities amidst a downward trend.
Theories Surrounding September Woes
There are a couple of theories floating around as to why September takes a toll on the crypto market.
The first theory suggests that some investors choose to exit their market positions, aiming to lock in their gains or losses for tax purposes before the year concludes.
The second theory hints at the broader market also experiencing a downturn during this time. Interestingly, historical data for the S&P500 over the last century supports this notion, revealing that September has consistently been the worst month with average returns of -1.1%. Furthermore, during September, the price has dropped 56% of the time, making it the only month with a higher likelihood of witnessing a price decline.
Crypto & Stocks: An Unlikely Dance
One significant concern is that cryptocurrencies have become increasingly correlated with stock markets in recent months, currently standing at a correlation factor of 0.49. This high level of correlation is a cause for concern, implying that the movements of traditional stock markets might heavily influence the direction of the crypto market.
September 2023: Will Crimson Continue to Reign?
The question everyone is pondering is whether September 2023 will subject us to another month of red in the crypto world.
If we were to draw inspiration from the game of Roulette, where seeing six consecutive reds would make us inclined to bet on black, we might be tempted to predict a different outcome this time around. After all, streaks eventually come to an end, right? However, let’s not forget that speculation is not an exact science, and I, for one, am no betting professional (my wife even banned me from being within 100 feet of any casino). Instead of relying on mere hunches, let’s consider a few significant events that might shape the fate of September.
Crucial Dates to Keep in Mind
September 12: Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC), is scheduled to testify before Congress. His words might have a considerable impact on the regulatory landscape of the crypto market.
September 13: The Consumer Price Index (CPI) data is set to be released, offering insights into inflation trends. This information could influence market sentiments and subsequently affect crypto prices.
September 19-20: The Federal Open Market Committee (FOMC) meeting takes place, where the Federal Reserve discusses monetary policies. The market will be particularly attuned to any announcements regarding interest rate hikes, as these decisions can have far-reaching implications for various asset classes, including cryptocurrency.
September 27: Gary Gensler appears before Congress once again, providing another opportunity for market-shaping insights to be revealed.
Prepare for an Eventful September
As we fasten our seatbelts and brace ourselves for what September might bring, it’s crucial to acknowledge that this month has historically posed challenges for the crypto market.
Whether the streak of red will continue or come to an end remains to be seen. However, with these significant events on the horizon, it’s safe to say that we should expect an eventful ride. Keep a close eye on regulatory developments, economic data, and market indicators, as they will undoubtedly play a pivotal role in shaping the trajectory of the crypto market throughout September.
CoinDesk’s Best Story
In the world of asset markets, indexes serve as the bedrock of financial market growth, providing essential tools for investors. However, when it comes to the crypto market, the availability and adoption of indexes remain in their nascent stages, posing a significant hurdle for investors. The current advice to “buy the index” in traditional asset markets translates to purchasing Bitcoin (BTC) or Ethereum’s Ether (ETH) in a centralized account in the world of cryptocurrencies, which falls short in attracting new capital from sophisticated investors. Indexes, with their ability to facilitate efficient asset allocation, risk management, product development, and performance measurement, are indispensable for the evolution of crypto into a mature institutional financial market.
Components in Place, But Regulatory Support and Adoption Lagging
Various components necessary for successful indexes already exist today, including compliant institutional exchanges, robust data sources, and sophisticated methodologies. However, in the United States, what remains absent is regulatory support and widespread adoption of indexes that capture the intricacies and differentiating factors of crypto markets, such as proof-of-stake reward rates. Despite the lack of regulatory guidance, the industry must forge ahead with index development.
Impact of Index Adoption: A Summary
Let’s explore the profound impact that index adoption can have on the crypto market, touching on six key areas:
1. Price Discovery and Credibility
Indexes play a crucial role in establishing price discovery by aggregating data from various sources and calculating a representative value. Without reliable indexes, investors struggle to determine fair values, hampering their participation in the market. Professionally managed indexes lend credibility to the market, fostering confidence among both retail and institutional investors.
2. Benchmarking and Investment Products
Indexes supply benchmarks against which asset performance can be evaluated. In the absence of established indexes, investors face challenges in comparing different investment products or managers. This lack of benchmarking hampers the creation of investment vehicles like derivatives, critical components of sophisticated portfolio management, and cryptocurrency exchange-traded funds (ETFs), which have the potential to attract substantial retail and institutional capital.
3. Risk Management and Transparency
Indexes assist investors in assessing the risk and volatility associated with an asset. The absence of reliable risk metrics impedes investors’ ability to manage their exposure and effectively transfer risk. Present-day Web3 indexes go a step further by offering full transparency, with all data viewable on-chain. This enhanced transparency contributes to improved risk assessment, refining asset allocation models, and promoting market stability, ultimately facilitating a more informed investment process.
4. Market Research and Analysis
Indexes provide valuable data for academics and analysts to study market trends, correlations, and behaviors. This research plays a pivotal role in informing investment strategies and cultivating a deeper understanding of the asset class, thereby contributing to its overall development.
5. Product Innovation and Customization
Indexes empower the development of innovative investment products tailored to specific market segments or themes. By offering a comprehensive view of the market, indexes serve as a foundation for product customization, allowing investors to access novel investment opportunities and strategies.
6. Institutional Market Maturation
Most importantly, the adoption of indexes is instrumental in propelling the crypto market toward institutional maturity. Sophisticated investors seek the support of indexes for efficient asset allocation, risk management, and performance measurement. Their inclusion in the crypto space paves the way for institutional capital inflows, propelling the market toward stability and sustained growth.
Moving Forward: A Call to Action
Although regulatory hurdles and adoption challenges persist, the development and embrace of indexes remain imperative for the crypto market’s progress. The industry must rally together, leveraging existing infrastructure and expertise to push forward with index creation. By doing so, the crypto market will be poised to attract new capital, foster confidence, and unlock its full potential as an institutional financial market.
Twice weekly crypto goodness, coming your way! Catch us every Monday, Tuesday and Friday. And hey, don’t forget to check us out on Wednesdays for all the latest AI news – because why limit yourself to just one kind of intelligence?
