BitGo: Crypto Water Cooler — May 8
GM. It’s Wednesday, May 1.
Newsmakers
Hong Kong's Crypto ETFs: Market Dynamics and Potential Impact
Spot Bitcoin and spot Ether ETFs began trading in Hong Kong last week. Although, at $12.7MM in day one trading volume, their debut netted a fraction of the $125MM of U.S. spot Bitcoin ETFs’ day one volume, by the end of the week, the six funds had racked up $273MM in assets under management (AUM) with $230MM flowing into Bitcoin ETFs and another $43MM into the Ethereum products. China Asset Management’s funds jumped out to an early lead with those of Harvest Fund Management and Bosera Asset Management in partnership with Hashkey Capital tied for second.
Raw volume isn’t everything, though. Bloomberg ETF analysts Eric Balchunas and James Seyffart note that, considering the size of the Hong Kong market, the response is proportional. It’s also a test for interest in Ethereum ETFs, which is predictably lower than interest in Bitcoin ETFs but could grow if fund operators were allowed to stake their ETH holdings. The Hong Kong products do not currently allow it, but U.S. ETF applicants have included staking in their applications.
Plus, many observers believe that the Hong Kong products could eventually provide a gateway into the Chinese market with the CEOs of both China Asset Management and Harvest Global expressing cautious optimism. Until that happens, the Hong Kong products provide investors with more choices. “Some investors may prefer not to trade spot crypto ETFs listed in North America or Europe for reasons such as less favorable taxes or restrictions by their home country regulator,” said Hobeng (HB) Lim, BitGo’s managing director of Asia Pacific.
At 0.3% to .99%, Hong Kong fees are significantly higher than U.S. percentages; that’s not likely to change because there are fewer regulated service providers and only two approved trading desks (Hashkey and OSL). However, unlike the U.S., Hong Kong allows for in-kind transactions. This means that investors can buy and sell shares using crypto tokens, which eliminates the cost of converting Bitcoin or Ether to fiat.
Read more →Bloomberg ($)
Report: Voluntary Regulatory Compliance Shows Benefits
U.S. crypto firms operate in a regulatory gray area where enforcement actions abound, but the only mandatory licensing requirements are FinCEN MSB at the federal level and money transmitter licenses for each state where they do business. However, many firms are working to comply with TradFi regulatory norms voluntarily. Those efforts are proving effective at improving market efficiency and reducing investor risk, according to a long term study, “Informational Efficiency of Cryptocurrency Markets,” updated by George Mason University earlier this year.?
The study authors contrast regulatory features of initial public offerings (IPOs) of stocks and crypto initial coin offerings (ICOs). For example, the SEC requires IPOs to disclose information related to the quality of the offering and FinCEN requires disclosure of traders involved. Information must be verified by third parties such as auditors. ICOs have no such requirements.
Then, by using mathematical formulas and proofs, the authors demonstrate what may seem obvious: third party verification of the quality of information and credibility of an organization seeking public capital, even when not required, reduces investor uncertainty. So, when crypto fundraising projects come with more and verified disclosures, they provide increased investor confidence compared to those that do not.
Going above and beyond what’s required is how the “unregulated cryptocurrency market eventually converges with the traditional asset market,” the authors write. Adopting such compliance measures builds reputation and enhances investor trust; the development of additional regulations for crypto could address outstanding market inefficiencies and attract additional investors into the market.
Read more →George Mason University
EigenLayer, Friend.tech Latest to Illustrate Perils of Airdrops?
?Airdrops made a massive comeback in 2023 with over $4.5B worth of tokens dropped. As “airdrop season” rolls into 2024, though, it’s becoming clear that even the best laid plans for marketing with token giveaways can go awry. Last week’s drops from EigenLayer and Friend.tech provided the latest exemplars.
When Friend.tech, which has flagged since its splashy debut last summer, airdropped its token last week, the largest recipient quickly dumped their entire allocation, causing market value to fall by over 50%. The seller appears to be a savvy airdrop farmer--a user who interacts with a protocol, sometimes through multiple wallets, for the sole purpose of amassing airdropped tokens. Farmers often sell immediately, resulting in panic selling by legitimate protocol users. Omni Network had a similar experience, falling 55% in the hours after its airdrop as users with large holdings dumped their tokens.??
Hoping to avoid this and other pitfalls, the Eigen Foundation made its “season one” (the first third of a 15% allocation for community members) “stakedrop” of EIGEN non-transferable. Recipients will not be able to sell the tokens—at least right away. Many were displeased. Some also took issue with the airdrop’s complicated linear distribution method, which was meant to block Sybil attacks and prevent users with many wallets from claiming a disproportionate share of rewards.?
Hoping to avoid trouble with regulators, EigenLayer also blocked users in the U.S., China, Canada, and as well as people who interacted with the protocol via VPN, a popular way of protecting privacy. Some indignantly pointed out that the platform had no such qualms about taking deposits from these users.
Some users are voting with their feet as over 14,000 (about 13% of its user base) have initiated withdrawals from the protocol since April 29. However, the total withdrawn only amounts to a small percentage of Eigen’s TVL, implying that it is mostly smaller users who are leaving.
领英推荐
Read more →The Defiant?
News In Brief
Business of Crypto
Regulation and Security
DeFi and Web3?
Midweek Market Pulse
Total Market Cap: $2.35T?– 7 day change as of Tuesday 5/7/24 12 PM EST: +4.4%
After seesawing for the past few weeks, the crypto market stabilized to stand at $2.35T, 4.4% higher than last week.?
Bitcoin (BTC, +5.2%) rebounded quickly after falling to two-month lows last week. Also last week, Fed Chair Jerome Powell ruled out the idea of further interest rate hikes in June. Lower rates are largely seen as positive for crypto, so the fact that CME’s FedWatch tool shows that markets believe a cut for July or September is on the table added to positive sentiment.
?The increased optimism about the direction of Bitcoin has translated to growing demand for out-of-the-money call options with strike prices from $75,000 to $100,000 on Deribit with the $100,000 strike call option having the highest notional open interest of all options listed on the exchange.?
Elsewhere, Solana (SOL, +22.4%) was up significantly as it overtook Ethereum (ETH, +3.1%) in terms of DEX trading volume over a 24-hour period on Tuesday. The more buoyant mood lifted meme coins with Pepe (PEPE, +24.9%) and Dogwifhat (WIF, +35.5%), edging them closer to the top 30 cryptos by market cap.?
And, after a sluggish April, AI-related tokens had a big week. Render’s (RNDR, +50.3%) massive rally took its market value to $4.2B and propelled it into the top 25 digital assets by market cap. BitTensor (TAO, +18.4%) and Fetch.AI (FET, +27.3%) also joined in. The move to the upside seems to largely coincide with popular AI-related stocks like Nvidia and Super Micro Computer, which also performed poorly in April, regaining momentum in recent days.?
The Last Word
Sybil Attack
Noun: An attack on a computer network in which the attacker creates multiple fake identities to gain disproportionate influence
/ Sybil attacks on blockchains can result in corrupted and/or stolen data and loss of funds.