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When it comes to the “next big thing” for independent platforms, the newsletter platform Substack has been at the forefront of the charge. The company has lured big-name independent writers such as Casey Newton and Glenn Greenwald to the platform to start their own newsletters. 

Substack is now also being leveraged for its ease of use and reach by scammers to impersonate various cryptocurrency projects, encouraging those it reaches to “upgrade their smart contracts” and send funds to a proxy contract ID. 

The language across multiple newsletter emails was similar, just plugging in and playing with different project names, suggesting they had a similar origin. 

Scam Substack newsletter impersonates Gnosis

Related: US Man Admits Using Bitcoin to Help Launder $630K From Romance, Lottery Scams

For a scam newsletter impersonating the project Gnosis, the dek of the newsletter reads, “The upgraded smart contract uses 71% less gas, supports updates thanks to proxy patterns and allows you to participate in future votes.” While the newsletter said no immediate action was needed, “GNO holders who update early will be eligible for the new liquidity rewards program, starting on January 20th and lasting one week.”

The Gnosis Twitter account tweeted that the newsletter was fraudulent. In the tweet, the Gnosis account told users not to interact with this Substack account, share their wallet address or send any funds. 

“Gnosis was alerted to the phishing attempt on Substack via Twitter, as we were one of many popular blockchain projects targeted,” said Gnosis Director of Strategy Kei Kreutler in a direct message. “We immediately contacted Substack and they took down the fraudulent account.”

When CoinDesk reached out to Substack regarding the account on Jan. 15, it noted the account was taken down but did not respond to questions regarding what preventive measures are in place for these types of situations. 

Related: Bitcoin Scam Using Unauthorized Celebrity Images in Ads Traced to Moscow: Report

“We have permanently removed this account from the platform and any subscribers will no longer have access to the fraudulent Substack site,” the support team said. 

While that Substack post (archived here) has been taken down, it appears the scam account is still active and was able to post additional material as of Jan. 21. 

Other projects affected

Gnosis wasn’t the only project where this happened. 

Projects such as RenProject, Kyber Network, Synthetix, Quant, UMA “and probably more,” were also victims, according to cybersecurity researcher Avigayil Mechtinger of the firm Intezer. 

“This together with sending emails to relevant users is a whole infrastructure of its own and [the newsletters] used the same scam contract id – 0x093fAd33c3Ff3534428Fd18126235E1e44fA0d19.”

The scam impersonating Gnosis has already been seemingly successful to some extent though, with at least one responder to the Gnosis tweet admitting to being a victim and sending tokens to this proxy.  Another expressed surprise that Gnosis wasn’t the one sending these emails after receiving one. 

“We look forward to [Web 3.0] account tools becoming integral for providing trusted, unique and authenticated identity on the web so that such issues on other platforms arise less in the future,” said Kreutler. “This is why we built the Gnosis Safe, and we hope to see platforms like Substack beginning to adopt Web 3.0 technologies.”

Email phishing

Imitating emails so they look like they are coming from a legitimate source is a common practice, with the overall goal being for users to open them and give up information or money. Indeed, CoinDesk readers have been victimized by scammers sending out emails impersonating us. 

The Substack scam is a logical extension of this method, with the goal of reaching a large group of people with seemingly legitimate material. Scammers are often looking for new and convincing ways to target individuals. While people might pass over a classic “Nigerian prince” scam email, they may let their guard down when it comes to legitimate-looking emails from a popular newsletter site. 

With a limited number of moderators and Substack’s hands-off approach, it will likely be up to readers to keep an eye out for scams like these when they arise. 

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Bitcoin’s options market continues to grow along with an institutional-led bull run in the leading cryptocurrency. Yet, while many use options to hedge their positions, the large amounts of bitcoin options slated to expire in a few days may themselves lead to wild price swings as January draws to a close. 

At press time, there are 120,300 contracts worth $4 billion set to expire this Friday on major exchanges Deribit, CME, Bakkt, OKEx, LedgerX, according to data source Skew. Much of that amount can be found on Deribit, the world’s largest crypto options exchange by trading volume. It is on track to register a record monthly bitcoin options expiry of 102,162 contracts (nearly $3.5 billion). 

A call option gives the holder the right but not the obligation to buy the underlying at a predetermined price on or before a specific date; a put option represents a right to sell. An out-of-the-money (OTM) call is the one with the strike price higher than the spot price. As of press time, call options at strike prices above the current spot price of $34,500 are OTM. Meanwhile, put options at strikes below the spot price are OTM as well.

Market makers may inject volatility

Related: Market Wrap: Bitcoin Hits $34.8K While Ether Volatility Skyrockets

Option expiries seldom have a direct impact on the spot price. However, when open interest is concentrated in out-of-the-money (OTM) call and put options, which is the case with bitcoin, a sudden pre-expiry move forces market makers to hedge with the underlying asset. That leads to more significant price turbulence.  

Over 80% of the Deribit-based Jan. 29 expiry open interest is set to expire out-of-the-money, or worthless. Notably, more than 52,600 call option contracts and 29,800 put option contracts are currently OTM, as noted by Swiss-based data provider Laevitas. 

See also: Trading Hall of Fame: The Bitcoin Options Bet That Made $58.2M Profit on Just $638K

“If BTC rapidly jumps to all-time highs within the next few days, it’s expected market makers will aggressively hedge their out-of-the-money short call option exposures, which would likely increase overall market volatility and momentum in the underlying price,” Samneet Chepal, quantitative analyst at the quantitative and systematic digital asset investment firm Ledger Prime, told CoinDesk. 

Related: Vietnam’s Oldest Bitcoin Exchange Adds Support for Lightning Network

Market makers are individuals or member firms of an exchange that create liquidity in the market and take the opposite side of the transaction initiated by traders/investors. 

Given the recent strong bullish sentiment and massive buying in higher strike, out-of-the-money call options, market makers across the board are likely to be net short gamma (call sellers), according to Chepal. 

Options gamma is the rate that delta will change based on a $1 change in bitcoin’s price. Delta measures the sensitivity of options prices to the changes in the spot market price. 

Being short gamma means being an option writer (seller) regardless of whether call or put. In this case, market makers are short gamma due to call selling. That makes them vulnerable to a sudden move to the higher side. 

Therefore, if bitcoin rallies while heading into Friday’s expiry, the market makers may aggressively hedge their OTM short call exposure by taking a long position in the spot market, leading to heightened price volatility and stronger bull momentum.  

The market makers will likely spring into action if bitcoin jumps to all-time highs above $42,000 ahead of Friday, as most open interest is concentrated in higher strike price calls. “A massive chunk of open interest is in deeper OTM call strikes above $44,000,” Chepal said.

Data provided by analytics platform Genesis Volatility shows the largest concentration of open interest is in the $52,000 call. 

Delta hedging

“In an attempt to protect against an out-of-the-money result, options traders may likely resort to delta hedging strategies,” Sui Chung, CEO of CF Benchmarks, told CoinDesk. 

Delta hedging, or delta-neutral, comprises multiple positions (long and shorts, call/puts) aimed at reducing, hedging the directional risk associated with price movements in the underlying asset. 

For instance, the delta of the $40,000 call expiring on Jan. 29 is currently 0.10. That means the option’s price will change by $0.10 for every $1 change in bitcoin’s price. 

See also: Bitcoin Bounces as Options Market Sees 20% Chance of $50K at Month’s End

Another way to look at it is that investors currently holding a long call position with a strike at $40,000 have a BTC 0.10 delta exposure. To hedge against the exposure, traders can short sell BTC 0.10 in the spot or futures market or else buy a put option with a 0.10 delta. 

Option traders generally hedge delta with options. However, in particularly fraught times they could also resort to hedging with the underlying asset itself, leading to heightened price volatility, according to Chung. 

“This can create a vicious cycle, with increased volatility leading to even more derivatives traders rushing to the same hedging strategies, which ends up having the same effect as pouring oil on an open fire,” Chung said. 

Bitcoin is currently trading near $34,100, having put in lows below $29,000 last week, according to CoinDesk 20 data. As long as these options remain open in the market, the next couple of days could be interesting – and perhaps volatile – for bitcoin. 

Related Stories

• First Mover: Bitcoin Flushes ‘Weak Hands’ as Ethereum Hits New All-Time High
• Crypto Long & Short: No, Bitcoin Was Not a Response to the Financial Crisis

Publicly traded Chinese gaming company The9 (NCTY) announced an agreement to buy 26,007 bitcoin ASICs as part of its plan to launch a cryptocurrency mining initiative.

• The9’s subsidiary NBTC will own and operate the machines, which are expected to total 549 petahashes per second (PH/s) of hash power.
• The9 says a “majority” of these mining machines have already been deployed in Xinjiang, Sichuan and Gansu.
• Per a press release, Canaan‘s (CAN) former director, Jianping Kong, will also help the Shanghai-based Internet company launch and maintain its cryptocurrency mining operations.
• Details about which machines and from where The9 purchased them were not disclosed, but The9 said it signed five separate memorandums of understanding (MOUs) to secure the machines.
• The9 will issue shares to pay for the new machines, but didn’t disclose how many shares are to be issued.
• Shares of the company gained more than 18% Monday from their Friday close, currently trading above $13.

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Bank of England Governor Andrew Bailey held the central banker’s line against cryptocurrency proliferation at the Davos conference Monday.

At the same time, Bailey, a panelist at Davos’ digital currency talk, stressed that digital innovation in payments is here to stay. It’s just a matter of finding the right design and governance model for a “lasting digital currency,” he said.

“I don’t think we’re there yet,” said Bailey, adding, “Honestly, I don’t think cryptocurrencies as originally formulated are it.”

Related: BOE’s Bailey, Western Union CEO Part of Davos Panel on Digital Currencies

Bailey said the problem rests with value and volatility. People want their payments conducted over a stable medium, which the original cryptocurrency, bitcoin, certainly lacks.

Enter fiat innovation. Bailey suggested fiat systems could be made more efficient through digital means.

“We’re right still to debate stablecoin, we’re right to debate central bank digital currency. Those issues, I think, are very much up for grabs,” he said.

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As the world’s number one decentralized cryptocurrency has continued to cruise at prices head-and-shoulders above its previous record, bitcoin has taken the number one spot for most crowded investment trade.

Ethereum’s and Chainklink’s native cryptocurrencies, ether and link, have set new record highs while bitcoin is in motion to recover losses from its worst week in at least five months. Meanwhile, an early blockchain-based digital collectible sold for $762,000 … what!?

Top shelf

Calling bitcoin bulls:The Income Strategy fund for Miller Value Partners, a legendary hedge fund, recently bought a chunk of MicroStrategy debt issued to buy more bitcoin. Explaining the decision, Bill Miller IV said it was “an almost-free call option” on the cryptocurrency that “has been the best-performing asset over eight of the past 10 calendar years,” Miller wrote in an investor letter. MicroStrategy is not alone. Nasdaq-listed bitcoin mining firm Marathon bought $150 million in bitcoin to become a “pure-play bitcoin investment option” for Wall Street.

New normal. With rising cryptocurrency prices comes an increase in cybercrime and crypto ransoms, said the U.K.’s former cybersecurity chief. To buck the trend, Ciaran Martin said new laws may be necessary. As reported by The Guardian, a growing number of insurance firms are footing the bill for clients targeted by ransomware attacks, which has set the tone that it’s “OK to pay out to criminals.” Industry publication Decrypt has reported two recent cases of crypto-related hacks.

Related: First Mover: Bitcoin Flushes ‘Weak Hands’ as Ethereum Hits New All-Time High

Centralized core? Once Bitcoin Core’s most active maintainer, Wladimir van der Laan has decided to step back. In a blog post last week, the Bitcoin lead called for the project to further decentralize away from community leaders. Calling himself a “centralized bottleneck,” van der Laan also said the community should spin up alternatives to bitcoincore.org, a private website that hosts Bitcoin’s underlying code. “One thing is clear: This is a serious project now, and we need to start taking decentralization seriously,” he wrote.

Quick bites

• CRYPTO ADVOCACY: Group Coin Center received $1 million from Grayscale (CoinDesk’s sister company owned by Digital Currency Group. (CoinDesk)
• $45B LOCKED: Decentralized finance “market cap” soars along with ETH. (Decrypt)
• COUNTERFEIT CLOUDS? A vaping company tapped VeChain to prevent fraud. (Decrypt)
• CRYPTO DISSIDENTS: Protestors continue to send bitcoin to Putin’s critic, Alexei Navalny. (Protos)
• POLITICAL CRACKDOWN: Crypto ban for Russian public officials. (CoinDesk)
• BLOCKCHAIN OPPORTUNITY: Disrupting social. (CoinDesk op-ed)
• A HISTORICAL MATTER: Bitcoin was not “caused” by the last financial crisis. (CoinDesk – Crypto Long & Short)

Market intel

Supply and demand. Ether, the native cryptocurrency of the Ethereum blockchain, is rallying as investors appear to be rotating out of bitcoin. The number two crypto in terms of market cap hit a record high of $1,454.32, also notching a 90% year-to-date rise.

This price appreciation seems to be driven by major buyers, as evidenced by the number of ETH “whale addresses,” or those with at least 10,000 ETH, standing at 13-month highs of 1,103 on Saturday. Further, 35 whale addresses have been created this month alone and 75 since mid-November, according to analytics firm Glassnode.

Ethereum’s rally is also minting small holders. Both the number of non-zero addresses and addresses holding at least 0.1 ETH have risen to record highs, CoinDesk market guru Omkar Godbole reports.

Related: Big Investors Stacked Up Ether as Price Rose to Record High

So how do all these new bagholders affect ether’s supply? Well, some analysts are raising concerns about a coming crunch, noting that the number of coins held on exchanges fell to its lowest level since October 2019.

“ETH leaving exchanges is bullish as diminished supply makes it easier for the price to squeeze higher, generating a supply crisis,” trader and analyst Alex Kruger told Godbole. “It’s clear to me large parties are accumulating.”

With ETH futures and a number of protocol upgrades on the horizon, prices could continue to climb.

At stake

Beleaguered Ethereum hub ConsenSys is joining the “Digital Belt and Road” by integrating into China’s national Blockchain-based Service Network (BSN).

ConsenSys’ Quorum ledger, built by JPMorgan and targeted towards enterprises that want to build on a private and permissioned version of Ethereum, is the latest blockchain to be wrapped into the BSN. CoinDesk’ enterprise whisperer Ian Allison reports.

• ConsenSys bought Quorum from the investment bank in August 2020, for an undisclosed sum, at the same time JPMorgan placed an undisclosed strategic investment in the Ethereum incubator.
• Quorum is open source and home of the “JPMorgan Coin.”

The BSN, a base-layer developer sandbox for building blockchain applications across multiple different chains, has been steadily growing since its 2020 launch.

• So far it’s expanded to 108 public city nodes in 80 cities in mainland China as well as eight nodes in other cities around the world, according to a press statement.
• “China is a great example of where enterprise blockchain is a strong play,” said Charles d’Haussy, director of strategic initiatives and ConsenSys’ man in Hong Kong.

Still, the future for both blockchain-based systems is unknown. While Quorum has reportedly attracted enterprise clients, according to d’Haussy, ConsenSys’ director of strategic initiatives, no specifics have been given. Similar doubts could be raised about BSN – if China builds it, will people come?

Then again, similar doubts could be extended to the whole of the blockchain industry.

Who won Crypto Twitter? Related Stories

• Ethereum’s Ether Cryptocurrency Sets New All-Time Price High Above $1,450
• Crypto Long & Short: No, Bitcoin Was Not a Response to the Financial Crisis

Vietnamese Bitcoin exchange VBTC has integrated the Lightning Network.

In an announcement on Sunday, Vietnam’s oldest (and reportedly only Bitcoin-exclusive) exchange revealed that Lightning Network withdrawals are now open to its users. VBTC CEO Dominik Weil told CoinDesk that deposits will be available later this year.

According to an article by BitcoinVN News, the media arm of BitcoinVN, a parent company which also owns VBTC, Lightning Network withdrawals are priced at 1,000 satoshis plus 0.2% of the withdrawn amount. Normal bitcoin withdrawals have a fee of 100,000 satoshis (0.001).

Related: First Mover: Bitcoin Flushes ‘Weak Hands’ as Ethereum Hits New All-Time High

Weil said that the decision was inspired in part by the high fees that a bull market brings to bitcoin, as well as pressure from the local Bitcoin community, which has already embraced Lightning to an extensive degree.

“The [Vietnamese Bitcoin] community has built an increasing interest into toying around and utilizing the Lightning Network.  There are now about a dozen business in Saigon/Vietnam set up to accept Lightning payments via Neutronpay; Asia’s first Lightning ATM was launched back last fall in Saigon by one of our community members in Saigon. The calls for an exchange to start being able [to support Lightning] directly has been growing over the time. So we had to deliver.”

The news comes a few days after the exchange adopted SegWit native batched transactions as well, which will allow it to batch client withdrawals together in SegWit transactions to reduce on-chain fees.

Bitcoin’s Lightning Network meets bitcoin exchanges

VBTC’s adoption makes it one of the first exchanges to go live with the burgeoning technology. It also adds to a growing list of exchanges that have pledged (or launched) support for Lightning this year as the technology continues to spread across the globe to exchanges in various parts of the world.

Related: Crypto Long & Short: No, Bitcoin Was Not a Response to the Financial Crisis

The Bitfinex and River Financial exchanges came into 2021 with full Lightning Network support, and U.S.-based Kraken Exchange announced at the end of 2020 it would launch support sometime in 2021.

U.K.-servicing CoinCorner launched Lightning in January, and OKCoin announced last week it has been working on an integration that should be open to clients in February.

Lightning Labs CEO Elizabeth Stark, whose company designs the leading Lightning Network software implementation, told BitcoinVN News that VBTC’s integration adds more charge to an already electric network effect.

“We believe bitcoin has so much potential for billions of people around the world, and VBTC’s Lightning integration is a big step in bringing it to Asia and beyond,” she said. “As more exchanges join the Lightning Network, more people will be able to transact instantly, across the world, with low fees. Network effects in action.”

Update: Jan. 25, 2020, 18:04 UTC: This article was updated to include additional comments from VBTC CEO Dominik Weil.

Related Stories

• Why Did Bill Miller and His Son Buy MicroStrategy Debt? It’s the Bitcoin
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Daniel Davis, the Commodity Futures Trading Commission’s (CFTC) general counsel, is joining Katten Muchin Rosenman LLP, a law firm based in Chicago.

Davis, who joined the CFTC in 2017 under former Chair Chris Giancarlo, headed the agency’s legal division for four years, overseeing the regulatory agency’s compliance with the law in rulemaking as well as enforcement actions. In 2018, Davis also authored a memo authorizing agency staff to invest in cryptocurrencies.

He left the regulator earlier this month, shortly before Giancarlo’s successor, Heath Tarbert, also stepped down from his role as CFTC chair.

Related: Chris Brummer Said to Be Biden’s CFTC Chair, Crypto-Friendly Tarbert Steps Down

“I think crypto continues to evolve,” Davis told CoinDesk in a phone call Monday. “Really broadly speaking, what I’m looking to do with my practice is remain at the cutting edge of crypto.”

This evolution may continue to be unpredictable, he said. The new presidential administration may also approach the industry differently than Donald Trump’s regulators did. Davis will work out of Katten’s Washington, D.C., office.

“I would keep an eye on enforcement actions, the types of enforcement actions and theories that agencies advance in enforcement actions give some indication of the thinking that’s coming from regulators,” he said. 

There may also be legislative developments in the coming years, he said. While Congress hasn’t passed a large number of bills engaging the crypto industry to date, “there’s been a lot of talk on the [Capitol] Hill about whether to regulate” the space. 

Related: State of Crypto: What the Crypto World Should Watch for in the Biden Era

Future legislation is likely at the state, federal and even at an international level, he added.

At the CFTC, Davis oversaw the development of various derivatives products outside of the crypto space.

In his new role he plans to ensure his clients are in compliance with regulations and that rulemaking from regulatory agencies is in compliance with the Administrative Procedures Act and other laws governing how the agencies can create regulations. 

He’s already challenged rulemaking by the Securities and Exchange Commission (SEC) under the Dodd-Frank Act, he said.

Related Stories

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Grayscale Investments announced Monday it is making a major donation to support the non-profit Coin Center’s policy advocacy mission.

• The digital asset manager is donating $1 million to Coin Center and has pledged to match further donations of up to $1 million till the end of February.
• In 2018, crypto exchange Kraken donated $1 million to Coin Center and now Grayscale is taking up the torch by making a similar pledge.
• Coin Center aims to educate policymakers on cryptocurrencies to ensure that the U.S. government’s approach is based on a good understanding of the technology.
• “While it is the responsibility of blockchain and digital currency firms to support good policy-making in [Washington], D.C. to drive this industry forward, it is in the interest of all users, developers, investors, and other market participants that regulators are properly informed about developments in this space,” said Michael Sonnenshein, CEO of Grayscale Investments.
• A web page has been set up for the donation matching campaign that runs through February.
• Grayscale is a subsidiary of Digital Currency Group, CoinDesk’s parent company.

Read more: Grayscale’s Crypto Products Raised Over $3B Last Quarter, the Most Ever

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Suitably named Opium Finance has released collateralized debt obligation products (CDOs) for Compound Finance’s automated lending markets, Opium Protocol founder Andrey Belyakov told CoinDesk in a phone interview Friday.

Investors can put up the Compound debt token cDai – and soon Uniswap LP tokens – to diversify exposure to DeFi lending markets. Opium’s product pays out structured returns to both a senior and junior risk tranche in exchange. The former tranche offers a 7% fixed return on dai (a collateral-backed stablecoin) at maturity, while the latter pool offers a variable rate paid out after filling up the senior tranche’s return, a blog post shared with CoinDesk states.

As depicted in Michael Lewis’ The Big Short, CDOs are infamous for their role in monetizing the subprime mortgage crisis that spurred the 2008 financial crisis. Warren Buffet even went as far to call CDOs and other derivatives “financial weapons of mass destruction” years before the financial downturn. CDO holders lost out on expected payments when mortgage holders defaulted en masse. Banks that were over leveraged on the then-worthless debt obligations began to default themselves, such as failed financial giant Bear Stearns.

Related: How Cultural Differences Drive User Adoption in DeFi

It’s thought the transparent nature of blockchain-based financial applications could limit the downside of using these complex derivatives. Moreover, the risk profile of the average DeFi lending app is vastly different than the reasons CDOs became a household name over a decade ago. DeFi apps have little chance of becoming insolvent due to programmatic liquidation settings. Rather, the risk mostly comes down to software exploits which many poorly put-together DeFi apps experienced this past year. 

Belyakov said risk tranching increases the efficiency of capital on lending markets – a poorly understood problem in young DeFi markets he thinks derivatives can help address.

Risk tranching with crypto CDOs

It works as follows: A protocol issues a debt token representing a claim to funds deposited or “locked” on a DeFi app, such as cDai. These debt tokens allow those same deposits to gain exposure again on other markets. However, most DeFi investors let these debt tokens sit idle in wallets, re-invest them as collateral for other loans or put them up for yield farming. The problem is these bets often move in the same direction. Placing debt tokens into Opium’s CDO, on the other hand, acts as a categorical alternative to other forms of capital exposure, Belyakov said.

“What we did was look at the lowest-hanging fruit,” Belyakov said. “And we found that Uniswap LP tokens, Compound cDai and some others are just stored on a wallet; they are not being used as collateral or farming – you don’t utilize this capital.”

Related: ‘Let’s Not Be Bitcoin’: Yearn Finance Considers Minting $200M in New YFI Tokens

The derivative joins other early attempts to protect lenders from the software risks associated with decentralized finance. For example, Saffron Finance launched its unaudited protocol in November while little-known protocol Barn Bridge continues to build out an offering similar to Opium’s. The protocol also released a credit default swap (CDS) product for the tether stablecoin in September.

Opium is also jumping on the governance token bandwagon. The protocol released its opium (OPIUM) token Monday for decentralizing the protocol’s governance structure. The launch was preceded by a premine and a $3.5 million private sale including participation from venture capitalist Mike Novogratz, Galaxy Digital, QCP Soteria, HashKey and Alameda Research, among others.

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Bitcoin (BTC) was higher on Monday at around $33,000, rebounding after a 9.9% drop in the seven days through Sunday, the biggest weekly drop since August. 

“Bitcoin is seeing some consolidation itself after surviving another run at $30,000,” Craig Erlam, senior market analyst for the London-based foreign exchange brokerage Oanda, wrote Monday in an investor update. “A move back above $35,000 may start to change the conversation but the trend is against it these last few weeks and a move lower still looks more likely.”

Ether (ETH), the main cryptocurrency of the Ethereum blockchain, rose early Monday to a new all-time high price of $1,476.12. Ether, which is the second-biggest digital asset by market value after bitcoin, has nearly doubled just in January alone. 

Related: Blockchain Bites: ETH Pumps, Coins Leave Exchanges

“Given the dip from bitcoin and the steadiness of [ether], we could see investors move capital into the latter as they look for the next crypto asset that is going to perform in the current bull run,” David Derhy, an analyst with the trading platform eToro, said in emailed comments. 

Read More: Big Investors Stacked up Ether as Price Rose to Record High

In traditional markets, Asian and European shares rose and U.S. stock futures pointed to a higher open as investors weighed the odds of more economic stimulus. Gold strengthened 0.4% to $1,864 an ounce. 

Market moves

Bitcoin is coming off its worst week in almost five months, but the main takeaway, according to veteran digital-market traders and analysts, is that it wasn’t really all that bad.

Related: Vietnam’s Oldest Bitcoin Exchange Adds Support for Lightning Network

A quick glance at price charts shows that declines at least as large as last week’s 9.9% retreat have happened nine times in the past two years. 

And the cryptocurrency’s price has risen so dramatically and consistently over the period that those prior corrections almost look quaint. The worst sell-off in recent memory was the 33.5% weekly plunge in March 2020, when the devastating economic toll of the coronavirus became clear to global investors. But in absolute dollar terms, that $2,690 drop was less than last week’s $3,950 loss, showing just how far bitcoin’s price has climbed since then. 

According to Kraken, the cryptocurrency exchange, buyers appeared to materialize last week whenever prices fell to about $30,000. That’s just above the $29,112 level where bitcoin started off the year, following a 2020 when it quadrupled in price.  

“While 10%+ drawdowns shake conviction, these moves have been met with strong bids,” Delphi Digital, a cryptocurrency analysis firm, told clients Friday in a note. “Shaking out profit takers and ‘weak hands’ is necessary for BTC to make strides upwards.” 

According to Chainalysis, a blockchain-analysis firm, bitcoin’s recent rally to new record highs above $40,000 may have been too much to resist for speculators who have only recently nosed into the cryptocurrency arena, lured by the outsize returns of recent years. 

“New buyer behavior is still a major source of medium-term price volatility and is currently elevated,” Philip Gradwell, chief economist for New York-based Chainalysis, wrote Friday. “It is important to restate that the bitcoin price is still at historically very high levels.”

Ryan Selkis, CEO of the digital-markets analysis firm Messari, wrote that last week’s tumble “looked like a nice little dip for new buyers, and a wealth transfer from some of the weakest-handed sellers I’ve seen in crypto to those with an actual investment thesis.”

Data extracted from the bitcoin blockchain network show the number of addresses with at least 1,000 or more bitcoins increased last week – an indication that large institutional buyers may have been stepping into the market as prices dipped, CoinDesk’s Muyao Shen reported Friday.  

“The buying pressure seen in the lower bounds of the current range have been solid,” Matt Blom, head of sales and trading at the cryptocurrency exchange firm EQUOS, told clients early Monday in a note. “The selling pressure above is in no way weaker. If bulls manage to break out, though, the move to the next level ($34,855) could be explosive and even take us further, back to the upper $38Ks.”

The upshot? Further downside might still be in store, but the limited scope of last week’s price decline reveals plenty of demand for bitcoin at levels well above prices that prevailed in 2020. 

– Bradley Keoun 

Bitcoin watch

The bitcoin market is showing signs of weakening demand from U.S.-based institutions, according to Singapore-based trading firm QCP Capital.

Comparing bitcoin’s price moves during Asia daytime hours and American hours (split into 12 hours each) shows a clear pattern of relentless buying during the North American trading hours and selling in Asia, mainly by large investors (known as whales) and cryptocurrency miners.

The pattern emerged following the March 2020 price crash and had endured until two weeks ago when bitcoin reached record highs above $41,900. Since then, the strength during U.S. hours has lost momentum, QCP Capital noted in its Telegram channel.

The flat-to-negative “Coinbase Premium” – the spread between Coinbase’s BTC/USD pair and Binance’s BTC/USDT pair, which includes the stablecoin tether – also suggests absence of strong demand from high-net-worth individuals and institutions.

“I’ll keep my bearish bias until there are significant Coinbase premium and Coinbase outflow,” Ki Young Ju, CEO of blockchain analytics firm CryptoQuant, tweeted on Sunday. “BTC needs [U.S. dollar] spot inflows from institutional investors to start the next bull run.”

As such, odds appear stacked against the cryptocurrency keeping gains above $33,000.

“We could be in for a classic ‘W’ bottom when the first bounce off the lows is met by another batch of selling before it eventually bounces back for real,” David Lifchitz, chief investment officer of the Paris-based quantitative trading firm ExoAlpha, told CoinDesk in a WhatsApp chat.

– Omkar Godbole

Token watch

Ether (ETH): Three reasons to be bullish include next month’s CME futures launch, the planned transition to 2.0 “staking network” and possible token burns via the EIP 1559 update (CoinDesk)  

Chainlink (LINK): Data-oracle token hits new all-time high price above $25 (CoinDesk) 

What’s hot

Key executive at Huobi crypto exchange said to be taken into custody by Chinese police in investigation related to over-the-counter trading service. (CoinDesk) 

Valkyrie digital assets files application to SEC for bitcoin exchange-traded fund, joining VanEck in struggle to win U.S. regulatory approval. (CoinDesk) 

Wladimir van der Laan, lead maintainer of Bitcoin Core, key software underpinning Bitcoin network, seeks to move further into the “background” for the sake of decentralizing the project, following criticism of his decision to pull Bitcoin white paper from bitcoincore.org. (CoinDesk)  

Crypto exchange Coinbase now has more than $90 billion of assets on platform and more than 43 million registered users. (CoinDesk) 

Singapore exchange and state-owned investment firm Temasek announce joint digital-asset venture focused on capital markets. (CoinDesk)  

New Innovation Hub from Bank of International Settlements (the central bank for central banks) plans platform for testing central bank digital currencies. (CoinDesk) 

Coinbase to offer secondary market for private shares ahead of public stock listing, as pre-IPO contracts change hands at valuation of more than $70 billion. (The Block) 

CNBC stock-picking personality Jim Cramer suggests winner of $731 million Powerball jackpot should put 5% of newfound fortune in bitcoin. (CoinDesk)  

MicroStrategy’s $650 million of convertible bonds offer “very little downside and an almost-free call option on bitcoin,” writes Bill Miller IV, portfolio manager for investing legend Bill Miller’s Miller Value Partners. (Miller Value Partners)  

Bloomberg senior ETF analyst Eric Balchunas argues that SEC is long “past due” in approving a bitcoin ETF. (Bloomberg Opinion) 

Crypto Twitter trader/analyst @CryptoCapo_ says drop in open interest in coin-margined bitcon-derivatives contracts signals market bottom is in. (Daily Hodl)  

“New U.S. regulations regarding non-custodial wallets may push more cryptocurrency users to skip the exchanges altogether and use their coins to directly buy and sell goods and services,” Joel Valenzuela writes. (Cointelegraph) 

Analogs The latest on the economy and traditional finance

U.S. President Biden unlikely to raise taxes anywhere close to covering his spending proposals. (NYT) 

Biden to push Congress on stimulus after senators question cost. (Bloomberg) 

China overtakes U.S. as world’s leading destination for foreign direct investment. (WSJ)

Investor demand for lowest-rated junk bonds pushes yields to record lows; index of triple-C-rated corporate bonds drops to all-time low of 6.42%, below where 10-year U.S. Treasury-bond yields traded for most of the 1970s, 1980s and 1990s, (WSJ)  

Goldman Sachs stock-underwriting fees surged to $3.41 billion in 2020, more than double the prior year’s amount, buoyed by IPOs for SPACs. (WSJ)  

One-third of staff may work from home permanently post-coronavirus. (Bloomberg)

Coronavirus financial toll mounts as homeowners keep postponing mortgage payments. (WSJ) 

Tweet of the day Related Stories

• Big Investors Stacked Up Ether as Price Rose to Record High
• Ethereum’s Ether Cryptocurrency Sets New All-Time Price High Above $1,450

Bank of Singapore, a private banking arm of OCBC Bank, has said cryptocurrencies have the potential to partially replace gold as a store of value.

• Before that can happen, though, cryptocurrencies must overcome hurdles including high volatility, regulatory acceptance and reputational risks, according to a research note from the bank reported by The National News on Sunday.
• “First, investors need trustworthy institutions to be able to hold digital currencies securely. Second, liquidity needs to improve significantly to reduce volatility to manageable levels,” wrote Mansoor Mohi-uddin, chief economist at Bank of Singapore.
• If the issues can be addressed, bitcoin could have a place in investors’ portfolios as a potential safe-haven asset and means to diversify assets, he said.
• Cryptocurrencies offer the benefit that they are easy to move and store when compared with precious metals, though they are also prone to theft via hacking, per the note.
• Mohi-uddin doesn’t see cryptos replacing fiat currencies, however, as he considers them an inefficient unit of exchange.
• “Governments are very wary of any technology that could potentially displace national currencies. This would reduce the ability of policymakers to print money during economic crises,” he added.

Read more: Singapore Exchange, Temasek Launch Digital Asset Business for Capital Markets

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• Former UK Cybersecurity Chief Says Laws Are Needed to Stop Ransomware Payouts

New York-based Ethereum hub ConsenSys has partnered with the Blockchain-based Service Network (BSN) to bring its enterprise ledger, Quorum, to China’s nationwide blockchain project.

As part of the partnership, announced Monday, ConsenSys Quorum, an open-source protocol layer that serves as a foundation for businesses to build Ethereum-based applications, will be available in about 80 different cities through BSN’s public city nodes throughout mainland China.

“China is a great example of where enterprise blockchain is a strong play,” said Charles d’Haussy, director of strategic initiatives and ConsenSys’ man in Hong Kong. “What Ethereum is doing with ConsenSys Quorum is connecting people who are essentially migrating from the permissioned chain to the global chain.”

Related: Beijing, Shanghai to Join Wider Testing of Digital Yuan in 2021

It’s a plum announcement for Quorum, the privacy-centric blockchain originally designed by engineers from JPMorgan. Quorum appeared to be in the wilderness for a time, between being spun out of the bank and re-housed within the ConsenSys ecosystem. 

“Quorum was very much associated with JPMorgan, but there was also this open-source software which was available to many developers,” said d’Haussy in an interview. “It may not have been apparent, but there was this large audience of enterprise users, and we are now bringing to this ecosystem other products and applications from ConsenSys.”

The BSN was founded in April 2020 by Red Date Technology, a Beijing-based software company, China UnionPay and China Mobile. BSN spans various cloud environments and portals in China (Quorum is already integrated with Alibaba Cloud), and is also backed by the Chinese government in the form of the National Development and Reform Commission (NDRC), an economic planning agency.

Designed to be the backbone of the so-called “Digital Silk Road,” BSN has so far deployed 108 public city nodes, connecting over 80 cities across mainland China and eight public city nodes in other countries around the world, according to a press statement.

Related: At Least One Key Huobi Executive Is In Custody in China: Sources

“After the launch, BSN will include Quorum in BSN’s training programs in 2021 to substantially accelerate the enterprise adoption of blockchain technology and Ethereum-based solutions in China,” Yifan He, CEO of Red Date Technology and the executive director of BSN Development Association, said in a statement.

“GoQuorum will also be interoperable with other permissioned frameworks and open permissioned frameworks on BSN,” He said, “building the blockchain cornerstone for the ‘new infrastructure’ in China.”

Summing up, d’Haussy pointed out permissioned blockchain was the obvious start of the journey for many large firms but that commercially these networks are extremely hard to get off the ground.

Enterprise blockchain has been given strong support from the government in China and the tech is a good fit for the country’s sprawling manufacturing landscape, he said.

“China’s industries, which are a global network of large and small suppliers, are not integrated as they were in the past,” said d’Haussy. “They are jumping on coordination tools such as blockchain.”

Related Stories

• Increased Mainstream Adoption of Bitcoin Cuts Diversification Benefit, JPMorgan Says
• Chinese City Plans Third Digital Yuan Pilot, Giving Away $3M in Prize Draw

Cryptocurrency mining company Marathon Patent Group (MARA) bought $150 million in bitcoin for around $31,100 apiece during the crypto asset’s recent price rout.

The Nasdaq-listed firm said Monday it purchased the cryptocurrency through institutional bitcoin shop NYDIG. Marathon is the latest publicly traded company to swap a cash treasury for bitcoin, and, with 4,812.66 BTC now on the books, one of the largest by sheer investment size.

Marathon CEO Merrick Okamoto said in a statement the bitcoin buy “accelerates” his mining company’s transformation into a “pure-play bitcoin investment option” for crypto-hungry Wall Street traders.

Related: Samsung Discussing $10B Chipmaking Facility in Texas: Bloomberg

Wall Street traders already have a few options on that front, some more creative than others. There’s Square, the payments company and Cash App owner with 4,702 BTC. And there’s Grayscale Bitcoin Trust, which has purchased over 600,000 BTC for its investors, many institutional. (Grayscale is owned by CoinDesk parent company Digital Currency Group).

But Nasdaq’s flashiest indirect bitcoin exposure vehicle is perhaps business intelligence company MicroStrategy, whose semi-regular bitcoin buys (it now holds 70,784 coins) have wooed investors, and boosted MSTR’s share price 370% since July.

Read more: Michael Saylor: Bitcoin’s Cyber Hornet

Bitcoin mining company stocks have tracked with the market-leading crypto asset’s recent price boom. But Marathon’s investment strengthens its ties even further, seeking to peg its appeal even more tightly to bitcoin with the investment.

Related: Hut 8 Completes $11.8M Financing for New Bitcoin Mining Machines

While fellow public crypto miners Riot Blockchain and Hut 8 (a Canadian firm) also hold bitcoin on their balance sheet, those larger miners amassed their troves by mining and holding, not, like Marathon, through a direct investment model.

They’ve been more successful by the numbers. In Q3 2020 Riot reported $2.4 million in mining revenue and Hut 8 disclosed $4 million. Marathon’s far smaller mining fleet generated just $835,184 in revenue in the same period.

The bitcoin mining industry is now going through what Okamoto has called an “arms race” for new rigs. More mining machines means more mining power means more potential bitcoin, and Marathon is racing to catch up.

Marathon entered 2021 on a cash-raising tear as CEO Okamoto raced to win the mining rig “arms race.” Determined to push its rig count above 103,000 by next year, the company raised $200 million in early January and an additional $250 million just over a week later. Okamoto has said the capital infusions will fund business expansions.

See also: Hut 8 Completes $11.8M Financing for New Bitcoin Mining Machines

The company will not reach its target mining capacity anytime soon. In the interim, it’s leveraging its cash “to invest in bitcoin now,” Okamoto said.

Okamoto told CoinDesk that Marathon had $425 million in cash on hand before completing its $250 million equity raise. He would not say how much cash the company has left.

Related Stories

• Class Action Filed Against Listed Bitcoin Miner Bit Digital Over Fraud Allegations
• The Bitcoin Double-Spend That Never Happened

Two Austrian men accused of helping Wirecard’s former chief operating officer escape to Belarus have been arrested by police in Vienna.

• According to a report from the Financial Times on Monday, a former senior official of the Austrian secret service and a former right-wing politician were both apprehended in connection with Jan Marsalek’s escape. 
• Marsalek, an Austrian citizen, is on Interpol’s most-wanted list for allegedly masterminding the corporate fraud that ended with Wirecard’s collapse and an estimated €1.9 billion (US$2.3 billion) missing.
• Police documents seen by the FT confirm Marsalek escaped to Belarus from Austria last summer using a private jet he paid for with cash.
• Wirecard’s troubles caused issues at the time for cryptocurrency firms Crypto.com and TenX, to which it had supplied payment cards.
• Among the accusations of embezzlement, Marsalek is alleged to have sent large amounts of bitcoin to Russia from Dubai, where Wirecard had operated “dubious” services, according to previous reports.

See also: Wanted Wirecard Exec Said to Be Sheltered by Secret Service in Russia

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• Grayscale Donating up to $2M to Crypto Advocacy Group Coin Center
• Bank of Singapore Says Crypto Could Replace Gold as Store of Value
• Shariah-Compliant Crypto Exchange Wins License From Bahrain Central Bank
• Former UK Cybersecurity Chief Says Laws Are Needed to Stop Ransomware Payouts

Middle Eastern digital assets exchange CoinMENA announced Sunday it has received the green light from the Central Bank of Bahrain (CBB) ahead of its coming launch.

• The certified Sharia-compliant exchange said it has now been awarded a Crypto Asset Services Company license (category 2) from the CBB after meeting a number of technical, and security requirements.
• The platform will become one of relatively few fully licensed and operating digital assets exchanges for retail and institutional investors in the Kingdom of Bahrain, the United Arab Emirates, Saudi Arabia, Kuwait and Oman, per the announcement.
• Once launched, CoinMENA said it will offer spot trading in five major cryptocurrencies: bitcoin, ether, XRP, litecoin and bitcoin cash. It also plans an over-the-counter desk for larger trades.
• “Obtaining the license from the Central Bank of Bahrain allows us to operate under one of the most robust and globally-renowned digital assets regulatory frameworks where governance, security, and customer protection are central to all our operations,” said CoinMENA’s managing director, Dina Sam’an.
• A date for the planned launch was not provided.

See also: Coinbase Joins $6M Funding Round for Licensed Middle-East Exchange Rain Financial

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• New Regulators in Town: What’s Next for Crypto in DC
• Bank of Singapore Says Crypto Could Replace Gold as Store of Value
• Two Arrested for Orchestrating Escape of Wirecard Exec Accused of Fraud

Strong hands look to have been backing the recent rally to record highs for Ethereum’s ether cryptocurrency.

The number of whale addresses (those holding at least 10,000 ETH) jumped to a 13-month high of 1,103 on Saturday, according to on-chain data from blockchain analytics firm Glassnode. More than 35 whale addresses have been created this month alone, and 75 since mid-November.

The increased accumulation by investors with deep pockets may have put upward pressure on ether’s price.

Related: Blockchain Bites: ETH Pumps, Coins Leave Exchanges

The second-largest cryptocurrency by market value rose to a record high of $1,450 late Sunday and was last seen changing hands near $1,405, representing a 90% gain on a year-to-date basis, according to CoinDesk 20 data.

Small investors looked to have participated in the rally, too. Both the number of non-zero addresses and addresses holding at least 0.1 ETH have risen to record highs.

While the on-chain data is encouraging for ether bulls, drawing conclusions from metrics focusing on address growth changes should be done with care because a single user can control multiple addresses. However, the data would appear to indicate an influx of money into the ether market, probably via new and existing investors.

Supply shortage?

Data also shows ether is leaving centralized exchanges, possibly creating a supply shortage and facilitating a stronger bullish move, according to one analyst.

Related: First Mover: Bitcoin Flushes ‘Weak Hands’ as Ethereum Hits New All-Time High

The number of coins held on exchanges fell to 15,469,582 over the weekend, the lowest level since October 2019. The exchange balance has declined by more than 1 million in the past four days alone.

Further, exchanges witnessed a net outflow of 666,689 ETH on Jan. 20, the biggest single-day exodus since May 2019.

“ETH leaving exchanges is bullish as diminished supply makes it easier for the price to squeeze higher, generating a supply crisis,” trader and analyst Alex Kruger told CoinDesk. “It’s clear to me large parties are accumulating.”

Ether’s outflow from centralized exchanges does not necessarily mean investors are taking direct custody of their coins, which would be the case with bitcoin.

Some traders are likely depositing ether into decentralized exchanges and liquidity pools, while others could be “staking” coins to earn passive income. Staking refers to locking up cryptocurrency to receive rewards for participating in transaction validation on a proof-of-stake blockchain. Ethereum, which is shifting over to a fundamental upgrade, launched its Beacon Chain for that purpose in December.

Stronger gains ahead?

“The ETH slingshot is only now being drawn back, and we can expect a powerful upward move in the first half of 2021,” Jehan Chu, managing partner at Hong Kong-based crypto investment firm Kenetic Capital said, adding that increased staking and the growth in decentralized finance (DeFi) is ratcheting up organic demand for the cryptocurrency.

Ether locked in DeFi applications has increased from 6.615 million to 7.002 million in the past 15 days. However, the tally remains well below the early January high of 7.30 million and the 2020 high of 9.771 million, according to DeFi Pulse.

The options market is flashing strongly bullish sentiment, with one, three- and six-month put-call skews trading below zero, a sign of calls (bullish bets) drawing higher prices than puts (bearish bets), according to data source Skew.

Also read: Ethereum’s Ether Cryptocurrency Sets New All-Time Price High Above $1,450

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• Ethereum’s Ether Cryptocurrency Sets New All-Time Price High Above $1,450
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Russia’s Ministry of Labor has informed officials of federal and local government bodies they are prohibited from owning cryptocurrency and must dispose of any holdings.

A document, published on the Ministry’s website and dated Dec. 16, 2020, indicates the directive is aimed at preventing corruption. The news was first reported by Russian crypto news outlet Forklog.

The letter states that public officials in Russia on the federal and local levels, including Bank of Russia board members and chairs of government-owned corporations as well their spouses and under-age children, are not allowed to own cryptocurrencies and any digital assets issued outside the country.

Related: Grayscale Donating up to $2M to Crypto Advocacy Group Coin Center

The letter refers to the law on digital assets that came into force in January. The law includes a number of amendments to other Russian laws, including one that prohibits government officials from opening accounts in foreign banks and buying financial instruments from foreign countries. This list now adds “digital assets issued in accordance with the foreign law and cryptocurrencies.”

Government officials must divest themselves of any digital assets by April 1, 2021.

See also: Russian Court Takes Crypto Exchange Binance off Website Blacklist

The rules for disclosure, however, are not that strict yet. Public officials don’t have to report owning digital assets, along with other kinds of property, in their anti-corruption declarations for the year 2020 because this is the first year when the new law came into force.

Related: New Regulators in Town: What’s Next for Crypto in DC

It’s not clear how many government officials in Russia might own cryptocurrencies because there have been no public reports on the matter.

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The U.K.’s former cybersecurity chief said companies paying hackers to recover from ransomware attacks are funding organized crime, and new laws may be needed to stop the practice.

• Ciaran Martin, who was the founding chief executive of the National Cyber Security Centre (NCSC), told The Guardian that insurance firms sending funds on behalf of affected companies have made it “OK to pay out to criminals.”
• “People are paying bitcoin to criminals and claiming back cash” via insurance claims, Martin said.
• Criminal gangs often from Russia or other former Soviet states are fueling the ransomware problem, according to the report.
• The U.K.’s extortion laws were formed mainly in response to the threat of kidnapping and forbid the payment of ransoms to terrorists, but don’t apply to ransomware demands.
• “In the last year, experts are saying this is close to getting out of control,” said Martin. “You have to look seriously about changing the law on insurance and banning these payments, or at the very least having a major consultation with the industry”.
• Chainalysis recently reported ransomware attacks were up 311% in 2020 when compared to the year before.

See also: This Elusive Malware Has Been Targeting Crypto Wallets for a Year

Related Stories

• Grayscale Donating up to $2M to Crypto Advocacy Group Coin Center
• Bank of Singapore Says Crypto Could Replace Gold as Store of Value
• Two Arrested for Orchestrating Escape of Wirecard Exec Accused of Fraud
• Shariah-Compliant Crypto Exchange Wins License From Bahrain Central Bank

The U.K.’s former cybersecurity chief has said companies paying hackers to recover from ransomware attacks are funding organized crime and new laws may be needed to stop the practice.

• Ciaran Martin, who was the founding chief executive of the National Cyber Security Centre (NCSC), told The Guardian that insurance firms sending funds on behalf of affected companies have made it “OK to pay out to criminals.”
• “People are paying bitcoin to criminals and claiming back cash” via insurance claims, Martin said.
• Criminal gangs often from Russia or other former Soviet states are fueling the ransomware problem, according to the report.
• The U.K.’s extortion laws were formed mainly in response to the threat of kidnapping and forbid the payment of ransoms to terrorists, but don’t apply to ransomware demands.
• “In the last year, experts are saying this is close to getting out of control,” said Martin. “You have to look seriously about changing the law on insurance and banning these payments, or at the very least, having a major consultation with the industry”.
• Chainalysis recently reported that ransomware attacks were up 311% in 2020 when compared to the year before.

See also: This Elusive Malware Has Been Targeting Crypto Wallets for a Year

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• BIS Plans Platform for Testing Central Bank Digital Currencies in Cross-Border Payments