BitGo: Crypto Water Cooler — May 3
GM. It’s Wednesday, May 3.
Newsmakers
Crypto Business Exonerated in the Falls of SVB, Silvergate, Signature
It may come as cold comfort for crypto firms?struggling to find new banks , but a recently released report from the Congressional Research Service (CRS ) finds that exposure to crypto had little to do with the rapid fire collapses of Silicon Valley Bank (SVB), Silvergate Capital, and Signature Bank. Crypto had been previously exonerated by the FDIC in its reports about?SVB ?and?Signature , which blamed mismanagement by the bank and weak oversight on its own part in the case of the former and poor governance and inadequate risk management (including around its crypto deposits) in the case of the latter.
However, the report found that?fear?of crypto exposure was an added ingredient in the more generalized mix of fears that led to runs on the three banks. Silicon Valley Bank, the first to fall, had minimal exposure to crypto but its relationship with Circle, issuer of the USDC stablecoin, garnered plenty of press and resulted in a brief run on USDC that caused it to?depeg . Fear then focused on Silvergate, where crypto firms accounted for about 90 percent of deposits, and Signature where they accounted for about 20 percent.
The CRS report found that the banks’ “losses were not realized on crypto-related assets, but crypto deposit withdrawals caused banks to sell other assets at a loss” and notes that, while they have neither been “prohibited nor discouraged” from servicing crypto by the FDIC, “banks may be reticent.” The report concludes that “Hesitancy to bank crypto may also highlight broader uncertainty regarding what constitutes appropriate practices in the absence of a more robust regulatory framework.” First Republic, which failed last week, is not known to have had any crypto exposure.
Read more →Congressional Research Service
Backdoor No More: Bahamas Introduces Comprehensive New Rules for Crypto
Regulation and enforcement action around the world has sparked concerns that digital asset firms will move to jurisdictions with less stringent rules. The Bahamas, where FTX was headquartered, has taken itself off that list. The Securities Commission there has published the?Digital Assets and Registered Exchanges ?(DARE) Bill of 2023 with the goal of creating one of the world’s most advanced regulatory regimes.
Despite the Bahamian attorney general defending the current regulatory landscape in?November 2022 , the FTX scandal gave the country a figurative “black eye .” Regulators updated the?2020 version ?of DARE, taking learnings from the current crypto winter and from other regulations in existence or development in jurisdictions in the vanguard of regulating the nascent industry, including the E.U., Hong Kong, and New York.
The new rules contain significant consumer and investor protections, boosting the financial and reporting requirements for digital asset companies and requiring them to ensure that their systems and controls are sufficient for their business operations. The scope has expanded to include custody, staking, proof of work mining, and stablecoins. NFTs will be?categorized ?as either financial instruments or consumer assets. Algorithmic stablecoins and privacy coins are prohibited. Companies providing consulting advice will be subject to?oversight .
DARE is expected to become law at the end of Q2 2023. The public can?provide feedback ?through the end of May.
Read more →Bloomberg ($)
Debate Over Regulating DeFi: What Does the Future Hold?
Though proponents of decentralized finance say smart contracts eliminate the need for middlemen and regulation, it’s looking ever more likely that DeFi will be regulated. The question is when and how.
In mid-April, the U.S. SEC reopened the comment period on its proposed redefinition of what constitutes an exchange, providing supplemental material for commenters to consider how the rules apply to DeFi exchanges. And, in?testimony ?before the House Financial Services Committee last week, SEC Chairman Gary Gensler?reiterated ?his view that calling something decentralized does not exempt it from existing regulations.
Over at the U.S. CFTC, Chris Perkins, a member of the Global Markets Advisory Committee, suggests a?safe harbor sandbox approach ?where developers could enjoy a three-year grace period without submitting to federal securities laws.
Across the pond, DeFi was left out of the European Union’s comprehensive?Markets in Crypto Assets (MiCA) ?passed last week. In an interview, EU Parliament Member Ond?ej Kova?ík said this was due to the “young nature of this market .” However, he allowed that, as MiCA expands in scope, regulation may well extend to decentralized platforms.
Meanwhile, human actions are calling into question just how decentralized some platforms really are. A?kerfuffle ?recently erupted at Arbitrum when power brokers at the DAO distributed tokens without submitting to the on-chain voting process. And, when DeFi lending app Oasis recovered funds stolen in the Wormhole bridge attack, detractors?complained ?that Oasis compromised DeFi principles by hacking its own code to help authorities recover the funds. Also, a U.S. federal judge recently?ruled ?that individual members of the bZx DAO could be held liable in lawsuits.
Read more →Wall Street Journal ($)
News In Brief
Regulation and Security
领英推荐
Business of Crypto
DeFi and Web3
Midweek Market Pulse
Total Market Cap:?$1,178,162,609,019 –7 day change as of Tuesday 5/2/23 Noon EST: +2.5%
The crypto market was quiet this week as?Bitcoin (BTC, +1.3%)?and?Ethereum (-0.0%)?largely treaded water awaiting details from the Federal Reserve Board meeting on May 2–3. Notably, the crypto market is holding up much better than the equity market, which was down sharply on Tuesday afternoon after the JOLTS report showed a decrease in job openings and quit rate with job openings?falling to their lowest levels in two years . Other top layer-1s and alt coins mostly lagged the performance of Bitcoin and Ethereum.
Further turmoil in the banking sector is also roiling the equity markets. While Bitcoin initially reacted positively to news that?First Republic Bank was seized by regulators , news that JPMorgan bought most of First Republic’s assets seems to have?calmed ?fears and squelched the rally.
Casper (CSPR, +16.6%)?was one of the week’s standouts, tacking on to its 2023 rally with the?launch of its new wallet . Just outside the top 50 cryptos by market cap,?Render (RNDR, +10.5%)?continues to climb. Token holders recently approved proposals to put control of Render in the hands of community members and to?expand ?Render to the?Solana (SOL, +1.7%)?blockchain to gain greater speed and efficiency ahead of future expansion.
The Last Word
Crypto Derivatives
noun
: Financial instruments that derive their value from an underlying crypto asset
/ Derivatives contracts allow traders to bet on the price movements of digital assets without having to own the asset itself.
About BitGo
BitGo provides the most secure and scalable solutions for the digital asset economy, offering regulated custody, borrowing and lending, and core infrastructure to investors and builders alike.
Founded in 2013 — the early days of crypto — BitGo pioneered the multi-signature wallet and later built TSS to improve upon other companies’ MPC offerings. Between multi-sig and TSS, BitGo offers the safest technology on the market and safeguards over 600 tokens across a wide variety of blockchains.
Over the years, BitGo has expanded from offering wallets into providing a full-suite solution that lets clients hold assets safely and then put them to work.
BitGo launched BitGo Trust Company in 2018, providing fully regulated, qualified cold storage to complement BitGo Inc’s original hot wallet solution. In 2020, BitGo launched BitGo Prime, which allows its clients to trade, borrow, and lend. Moreover, BitGo also provides access to DeFi, staking, NFT wallets, and beyond, and serves as the world’s sole custodian for WBTC, or wrapped Bitcoin.
Today, BitGo is the leader in digital asset security, custody, and liquidity, providing the operational backbone for more than 1500 institutional clients in over 50 countries — a list that includes many regulated entities and the world’s top cryptocurrency exchanges and platforms. BitGo also processes approximately 20% of all global Bitcoin transactions by value.
For more information, please visit?www.bitgo.com.