Ethereum’s Shanghai Hurdle??, Love Island fights crypto??, Criminal Trump NFTs ???

Today I’m going to be talking about Etheruem’s forthcoming software upgrade. Wait! Come back! I promise it’s going to be interesting.?

Why? Because what happens with this upgrade, will set the tone for crypto’s relationship with its largest single market, America.?

Have I sold it enough? A bit more? Ok. So there’s about $70 billion at stake, which is going to shake markets if the decision doesn’t pan out the way Eth watchers would like. That means the crypto winter could get a whole lot worse, or it could lay the foundation for a future where Ethereum will probably be the backbone for most of what happens in Web3.?

Ready? Onwards.?

The Upgrade???

Ethereum is upgraded typically several times a year as part of its roadmap. So far, so crypto. But its next upgrade, ‘Shanghai’ is different. That’s because with this software switch, Etheruem, which recently became a proof of stake blockchain, will allow users who staked their tokens in the network to withdraw them and with it the interest they have earned for the first time.?

There’s around $70 billion worth of tokens currently in this position. No one knows what people will do once the day comes. It’s probable there will be some turbulence as people withdraw, but it’s also likely to draw billions if all goes smoothly. That’s because staking your tokens on Ethereum earns about 11.6% interest, which is a heck of a lot more than you’ll get in your savings account.?

But while most upgrades on Ethereum rarely make it past the crypto press, this one is different. Why? Because American regulators are having a row over how to classify this new Ethereum. The SEC says it's a security, and therefore is woefully unregulated. The Commodity Futures Trading Commission (CFTC) however, says it isn’t, and says it’s fine being classed as a commodity.?

The outcome of this argument will change Ethereum and the broader crypto markets. Let’s dig in a bit more shall we??

The debate???

Historically, Gary Gensler and the SEC were happy with Ethereum’s designation as a commodity. But the arrival of staking rewards has changed that.?

Gensler has been doing the rounds in investor circles saying that interest-earning contracts fundamentally change what Ethereum is, because those contracts are essentially financial services, which makes them a security.?

If that happens expect a litany of legal claims that staking services engaged in unregulated and therefore illegal securities offerings. This is bad news for a lot of crypto companies. Coinbase, Binance, Ledger, eToro, and a lot of others have all jumped on the staking train and offered this service to customers.?

Given the sorry state many of the above companies are in at the moment, some more deserved than others, this could cripple crypto. The SEC has already wielded its axe over this issue.??

In February, it fined Kraken, a crypto exchange, for offering staking services and forced it to pay a fine of $30 million and shutter its US services.?

Last month Coinbase received an SEC notice for potential securities law violations, including to do with its staking services. This is big: Coinbase is the second-largest depositor of staked Ether.?

But the CFTC doesn’t agree. It believes Ether is a commodity and has been saying that in Senate hearings over the last month.?

The CFTC chief stressed that the derivatives watchdog would not have allowed ether futures products to be listed on CFTC-regulated exchanges “if we did not feel strongly that it was a commodity asset.”

Essentially the CFTC’s argument is that it wouldn’t have let Ether flourish under its watch if it thought it wasn’t compliant.?

If the CFTC gets its way, it will likely lead to a lot of big money moving into staking as it becomes a safer way to make money in an increasingly volatile marketplace.?

So who wins????

This is one of those weird situations where regulators are both charged with overseeing the crypto industry but in different ways.?

The SEC regulates securities, which can include certain tokens. The CFTC meanwhile regulates futures and options markets, which include some tokens that have been formally classified as commodities.?

With this debate, it’s unclear who ‘would win’, but what is clear is US regulators, on the whole, do not want crypto getting anywhere near the traditional finance sector. The fallout from the banking collapses earlier this year was relatively contained as crypto tokens and crypto value had not crept far from the banks that held them.?

If Eth stays as it is, that would probably change. By 2027, the amount of staked Ether tokens is expected to reach 50% of total Ether supply. That’s about $102 billion worth of coins, a significant step up from where we are now.?

Whichever way it goes, hold on to your wallets, as prices are predicted to go wild this year.?

What people are shouting about: ???

• Do Kwon has been disappointed by the lack of VIP service in jail - Yes, everyone’s favourite Korean fugitive? “acted especially surprised and they told our officials that elsewhere in the world they had been used to VIP treatment,” Interior Minister Filip Adzic said in an interview. He’s currently in quarantine in Montenegro, awaiting the conclusion of which country gets him first: South Korea or the US.?
• Bitcoin liquidity has dried up - While the price of Bitcoin has sat relatively comfortably between $27-28,000, the amount of people willing to add liquidity to exchanges has vanished. That leads to an increase in slippage, which is when the price difference between the price quoted for the asset and what is finally received grows larger. Analysts reckon people aren’t willing to dip their toes in the crypto waters, suggesting bigger swings in price could follow.
• FTX Arena is dead - Yup, the $135 million deal the now collapsed exchange struck with local officials to rename the stadium the Miami Heat plays in, is no more. Say hello to the Kaseya Arena. Kaseya is a relatively small local IT Services company that somehow found $117 million lying around to strike a 17-year deal with the Heat.??
• Crypto hacks are up, but crypto lost is down - Crypto hackers have been on overdrive in the last quarter, according to new research.? The number of hacks in Q1 of 2023 has risen 192% year on year. But the amount lost is down by 64%, which the research puts down to the dollar value of crypto assets being lower this year than in the good old days of early 2022. Want to know which blockchain was the biggest target for scammers? Binance’s BNB. More than 70% of rug pulls took place there.??
• There’s a new type of Bitcoin NFT in town - Yup, they’re called STAMPS (Secure Tradeable Art Maintained Securely for you and me) and they’re basically a more permanent way of storing stuff on Bitcoin that isn’t transaction data. While Ordinals store data in such a way a node could ‘prune’ it, STAMPS are, as they sound irreversibly placed on chain. Which I fully expect will be exploited in exactly the same way as people did with Ordinals.?

The at first glance incredibly boring, but in reality, incredibly insightful and interesting thing you should read this week ??

Tether doesn’t have access to the US banking system. Yup, when Signature Bank went down, the conduit Tether had traditionally used went with it. But there’s more, Tether used Signet’s routing system to send its clients to a Bahamas-based bank called Capital Union Bank.?

And it had been previously blocked from opening accounts with Signature but somehow managed to find its way in. An investigation is now underway.??

Chart of the week ??

How much social media influencers charge for promoting crypto projects. Via Reddit.

Strange but true ??

• Another crypto exec died this week - Bob Lee, founder of Cash App and chief product officer of a San Francisco crypto startup was killed this week. While police have chalked it up to an increase in violence in the city, it joins a spate of crypto execs that have died under violent and suspicious circumstances in the last six months.??
• Someone is making a mint out of NFTs of Donald Trump in jail - As Trump faces justice in New York, an enterprising NFT artist has spun up an NFT collection capitalizing on the historic event. While they’re not selling as well as the original Trump NFTs, it’s nice to see capitalism being put to good use.?
• North Korea made off with $1 billion in stolen crypto last year - Yep, Kim Jong Un, the cheeky chappy, had a bumper year stealing money from crypto folks, which he’s been using to fund North Korea’s missile program. That’s double the amount Korea stole last year. Yikes.?
• A crypto project raised $1.7 million but the money got stuck - Yep, ZkSync, a startup specializing in privacy technology raised nearly $2 million for its project. However, the transfer function in the smart contract - the bit that allows you to move the money - doesn’t actually work. Meaning the millions are just stuck in a contract and can’t do anything. Update! It looks like they’ve found a fix. Huzzah!?
• UK regulators turn to Love Island star - Yep, Sharon Gaffka, who I’ve been told is a former Love Island contestant has teamed up with the UK’s financial watchdog to help combat the deluge of crypto scams circulating around Tiktok at the moment. Hey, whatever helps.???

And that's your lot for this week!

Happy Easter.

I love you all. ??