The Crypto 5

Greetings!

Welcome to December in what seems like the longest year in crypto. Your weekly wrap of must-reads and explainers follows.

Welcome to the Crypto 5.

We've heard sharing is caring, so think of?sharing this newsletter?as a seasonal and sustainable gift!

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1. Capitol Hill Crypto on the art of letter writing

Letter writing is not dead in Washington. A flurry out this week have been kindly summed up by Capitol Hill Crypto.

• Rep. Ritchie Torres (D-NY): "The SEC chose to dedicate scarce time and resources to investigating Kim Kardashian, rather than opaque crypto exchanges, leaving many to question whether the Commission is operating efficiently and apolitically and whether it has its priorities in the right place."
• Senators Elizabeth Warren (D-MA), John Kennedy (R-LA), and Roger Marshall (R-KS) sent a letter to Silvergate bank: “[Y]our bank’s failure to report these (FTX and Alemeda) suspicious transactions to the Financial Crimes Enforcement Network (FinCEN) may constitute yet another violation of the law.”?
• Senators Elizabeth Warren (D-NY) took to the pen again with Tina Smith (D-MN), this time to banking regulators: “Banks’ relationships with crypto firms raise questions about the safety and soundness of our banking system and highlight potential loopholes that crypto firms may try to exploit to gain further access to banks.”

Policymakers are “not letting a good crisis go to waste” and regulations are likely on the way. Next week's two FTX hearings will be ones to watch.

If you are a policy wonk, you need to subscribe to the Capitol Hill Crypto newsletter. It goes in-depth, links heavily to primary sources and Member of Congress statements and has a good look ahead section. The Crypto 5 is a fan.

2. Bloomberg's Matt Levin and the best arbitrage explainer

This is one of the clearest, easy to read articles on somewhat complicated financial terms. It's a long one, but you will leave a smarter person.

Overall, the story he wants to tell:

“...there was an intense demand,?within crypto, for “safe assets.” “Safe assets,” in this context, means places to invest your cryptocurrency or stablecoins that?earn interest, that feel like bank accounts rather than speculative investments.?

“Crypto had no sensible way to manufacture this interest. There were not a lot of people borrowing Bitcoin or stablecoins to buy houses or build factories or whatever. The best the shadow banks could do was lend their crypto to well-regarded crypto hedge funds secured by crypto collateral...

“But at least, the shadow banks thought, they were lending the money to hedge funds who were doing safe trades... And then you sit down with Kyle Davies (one of the founders of ThreeArrows Capitol) and ask him what kind of arbitrages he did and he’s like “well we’d take four-year lockups on illiquid unhedgeable tokens of brand-new protocols, but we’d get a discount, so it was kind of an arbitrage.” Oops!”?

Levin's article is in depth and well-written. To sum it up, bad business decisions in 2008, bad business decisions in 2022.

3. The Block on Brazil's 7 year crypto itch

Brazil may be out of the World Cup, but the country hasn't given up on crypto. It ranks 7th in global adoption of crypto and is the biggest in the LatAm market - taking in nearly $150bn in the past year. What happens here matters.

President Bolsonaro's term may end at the end of this month, but greeting him is a crypto bill 7 years in the making. The Block breaks down the key points in a story with plenty of its own twists and turns.

“The crypto regulation is to define digital assets and their service providers, as well as help guard against money laundering and fraud. The bill?gained momentum?after Brazil's Senate approved a version of it in April, but slowed in the past few months as it sat in the Chamber of Deputies awaiting a decision after several points in the Senate version were stripped out.”

“One of the most widely-debated topics had to do with a provision that would require crypto exchanges to follow certain guidelines for?segregating?client funds. According to the Brazilian crypto publication?Portal do Bitcoin, lawmakers decided to put the asset segregation issue on hold to pass the larger bill today.”?

4. Coinmarket Cap on the 2022 Crypto Literacy Survey

Could you pass this crypto quiz? I did (phew) - they don't call me Non-Fungible Russo for nothing.

Crypto use is growing in the US, but many Americans didn't do so well in a quiz put together by CryptoLiterary.org.

Before you jump in, brush up on some terms, checkout these links to explainers and then ace the quiz:

1) The Merge - Ethereum's transition from proof-of-work (PoW) to proof-of-stake (PoS). The move changed how transactions are processed, reduced energy usage, and set a foundation for future network upgrades aimed at enhancing the blockchain’s throughput and scalability.

2) Stablecoins - Digital currencies minted on the blockchain. The most popular stablecoins are backed 1:1 by fiat currency (what regular people call money). At last count there were hundreds of stablecoins out there.

3) Bitcoin - The world’s first completely open payment network which anyone with an internet connection can participate in. Bitcoin is decentralized: any two people, anywhere in the world, can send bitcoin to each other without the involvement of a bank, government, or other institution.

5. Reuters on Goldman's Holiday Crypto Shopping Spree

If you were a bank, and there were emerging tech companies and their experts going for a heavily discounted price, what would you do? You would supercharge your centralized departments with decentralized tech.

That is exactly what Goldman is exploring according to Reuters exclusive.

• Goldman “plans to spend tens of millions of dollars to buy or invest in crypto companies”?
• So far it has “invested in 11 digital asset companies that provide services such as compliance, cryptocurrency data and blockchain management.”
• There are “seven-strong crypto options and derivatives trading desk”
• It also has “launched (a) data service” and is “building its own private distributed ledger technology.”

Not bad for an organization that said it doesn't know what to make of crypto.

Before you go

On December 6th, some celebrated the 138th birthday of the Washington Monument. Here are three facts to help you with your next pub quiz:

• It was indeed built to honor George Washington, and plans started before he was president. But fundraising began 33 years after his death and took multiple phases of design and construction.
• Author?Mark Twain?described the unfinished monument as looking like a “hollow, oversized chimney” in between its two phases of construction.
• At 555 feet, it was the tallest structure in the world in 1884. A city law a few years later restricted the height of any new buildings to ensure it would be the tallest structure in Washington, D.C..