CoinDesk Crypto

Data provider Chainlink will provide decentralized weather data for insurance startup Arbol, according to a blog shared with CoinDesk.

Arbol provides crop insurance for small to medium-sized farmers or enterprises. Smart contracts pay claims to subscribers when a preset value – such as the average monthly temperature or rainfall – turns out different than the contract specifies, the firm said.

Called parametric insurance, the financial derivative is often used in agriculture to hedge against future events, such as a bad harvest. Other firms, notably CME Group, also offer weather derivatives that require middlemen.

Related: First Mover: Money Legos Turn ‘Exuberant’ as Chainlink Stripped of ‘DeFi’

Arbol insurance, on the other hand, self-executes using a mix of smart contracts and Chainlink data – no holdups on payments.

Read more: How DeFi Could Disrupt Traditional Finance, Feat. Sergey Nazarov

“Users are able to create derivatives on the blockchain that pay out based on weather outcomes. This allows weather-exposed entities like farmers to hedge their weather risk,” Arbol said in the blog.

The startup launched out of stealth in April after raising $2 million in a 2019 seed round, according to Crunchbase.

Decentralized weather data

Related: Market Wrap: Bitcoin Slides to $11.8K; Uniswap at $7M in Monthly ETH Fees

Chainlink pipes data from the National Oceanic and Atmospheric Administration (NOAA) and other sources, the blog states.

Tamper-resistant data is necessary for parametric insurance products that don’t require middlemen, Arbol founder and CEO Siddhartha Jha told CoinDesk in a phone interview. 

Arbol’s application is built on Ethereum smart contracts and also secures data via the Interplanetary File System (IPFS), according to a recent Arbol blog. The firm currently operates in the United States, Cambodia and Costa Rica.

Chainlink first presented decentralized data networks, known as oracles, as agnostic reporters for insurance companies up to four years ago, Chainlink founder Sergey Nazarov said in a telephone interview.

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Price Point

It’s been two steps forward, one step back for bitcoin (BTC) over the past couple months.

Prices were down early Wednesday for a second straight day after pushing earlier this week past $12,000 to a new 2020 high. The price move accelerated as traders got hit with margin calls on the BitMEX exchange. 

You’re reading First Mover, CoinDesk’s daily markets newsletter. Assembled by the CoinDesk Markets Team, First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. We follow the money so you don’t have to. You can subscribe here.

Related: Chainlink to Provide Data for Farming Insurance Startup Arbol

A sell-off on Tuesday didn’t fit into any neat investment pattern: The Standard & Poor’s 500 Index of U.S. stocks rose to a record, in a move widely attributed to the Federal Reserve’s trillion-dollar money injections, which theoretically could produce inflation. Bitcoin is seen by many investors as an inflation hedge, but gold prices, a traditional inflation hedge, rose. And the dollar fell, which also should theoretically push up bitcoin prices, since the cryptocurrency is denominated in dollars.   

Market Moves

This year’s rapid expansion in decentralized finance, or DeFi, has been so remarkable that analysts with the Norwegian digital-asset analysis firm Arcane Research are now calling the phenomenon “exuberant.” 

It’s been a “summer of crazy returns,” Arcane wrote Tuesday in a report. There are plenty of instances, most notably the recent mania in fresh-off-the-run “yield farming” tokens like Compound’s COMP and the now-kaput YAM. CoinDesk’s Paddy Baker reported early Wednesday news of another DeFi protocol, Spaghetti Money, which has no public figurehead or audited code, and it  just attracted $200 million.  

What investors are now trying to come to grips with is how much of this is real, promising innovation and how much is just crypto traders playing games with experimental DeFi building blocks; the projects are sometimes even referred to as “Money Legos.”

Related: $200M Staked in YAM-Inspired DeFi Protocol in Under 12 Hours

Entrepreneurs say they’re racing to build a better version of banks, trading firms and insurance companies, using blockchain technology and decentralized networks in concert to cut out rent-seeking middlemen; projects are supposedly controlled by “autonomous” governance systems. It’s all part of the industry spirit, which often seems like it’s live, but is still in beta and using real money.

And the sums are getting larger, fast. An index of 11 DeFi tokens created by the cryptocurrency exchange FTX has more than doubled in the past two months. Total value locked in DeFi systems, the most common way of measuring their success, has surged almost 10-fold this year to $6.8 billion, according to the website DeFi Pulse. 

As with any hype cycle, there’s a lot of room for confusion and loss. The data firm Messari wrote Tuesday in an email that some digital tokens referred to as “DeFi tokens” aren’t even really DeFi tokens. (See the Chainlink entry in Token Watch, below.)  

Eric Ervin, CEO of the cryptocurrency investment firm Blockforce Capital, wrote Tuesday that YAM’s rise and fall “should serve as a reminder that when it comes to investing, there is no free lunch.”  

And Mati Greenspan of Quantum Economics wrote Tuesday that “my preference, especially in the current crypto market, is to hold onto the more stable store-of-value coins.”

At a time when even traditional markets are now seen by many investors as irrationally exuberant, in the midst of a global pandemic and worldwide recession, it’s getting increasingly difficult to sort the productive from the crazy. 

-Bradley Keoun

Bitcoin Watch

“Bitcoin is beginning to show signs of lethargy,” the Singapore-based QCP Capital said early Wednesday in its Telegram channel. 

The leading cryptocurrency fell below $11,000, invalidating Monday’s ascending triangle breakout, which is considered a bullish continuation pattern.

The failed breakout, coupled with the bloated bullish positioning in the futures market suggests scope for an extended correction.

The immediate support is seen near $11,600, which, if breached, would open the door for a decline to $11,000. The broader bullish view remains intact with the U.S. inflation expectations rising to six-month highs. 

Read more: Bitcoin’s Bull Run is Slowing – Pullback Now Expected

– Omkar Godbole

Token Watch

Chainlink (LINK) rises to record despite apparently not being a DeFi token: The token for the decentralized finance (DeFi) oracle provider has continued its price rally, a 10-fold increase since a market sell-off in March. Searches for “chainlink” as well as the token’s trading volumes have soared. The project’s market capitalization has also surpassed bitcoin cash’s (BCH), now the fifth highest among all digital assets at $6.2 billion, according to CoinGecko. Mati Greenspan, the founder of analyst firm Quantitative Economics, told CoinDesk some investors may be getting in over their heads. And the data firm Messari wrote Tuesday that Chainlink isn’t technically a DeFi token because its price-feed service “in and of itself is not financial in nature.” 

YEarn.finance (YFI) skyrocketed on newly poured-in money: Prices for the governance token for the yEarn.finance have exploded since mid-July as investors flooded into the project. YEarn.finance, an aggregator of multiple lending protocols, optimizes for the highest yields for its users through several DeFi trading strategies. YFI holders can determine the overall direction of the protocol. CoinGecko shows YFI’s prices shot up to around $11,275 on Tuesday, an increase of more than 300-fold just since last month. The token’s limited supply – only 30,000 in total – is said to be a factor in the price increase, and YEarn founder Andre Cronje told CoinDesk that traders’ application of YFI in some other DeFi protocols may have contributed to the price surge.

Hive (HIVE) still trading at a premium to Steem: HIVE, the token resulting from a hard fork of Steem, changed hands at $0.269 on Tuesday versus the STEEM token’s $0.245, according to CoinGecko. The fight between the Tron Foundation and the Steem community was detailed Tuesday in Decrypt. The acquisition of Steemit Inc by Justin Sun’s Tron Foundation triggered widespread anger and fear that Sun might use the acquired Steem tokens to influence the community. The drama led to a hard fork and the creation of Hive.

-Muyao Shen

Analogs – on the economy and traditional finance

U.S. corporate-bond issuance hits annual record of $1.35T in just eight months (Bloomberg) 

Volatile currency markets might reflect diversification out of dollar (Bloomberg)

Brazilian, South African, Turkish currencies doing even worse than USD (WSJ)

U.S. Treasury Secretary: “The president wants us to do more. He wants us to provide money for kids and jobs.” (CNBC)

ECB assets to hit 8.2T euros by end of 2021, 70% of GDP (Bank of America)

Tweet of the Day

What’s Hot?

The OCC’s Crypto Custody Letter Was Years in the Making (CoinDesk)
A federal banking regulator’s decision to let banks provide crypto custody services may have seemed out of the blue, but the agency has been looking at cryptocurrencies for years.

Bequant, Now in Crowded Prime Brokerage Race, Adds Signature Bank Integration (CoinDesk)
Bequant, which built a crypto exchange to get into prime brokerage, has integrated Signature Bank’s Signet to its platform as part of a new partnership between the two.

Bitcoin Holding Sentiment Strongest in Nearly Two Years (CoinDesk)
Bitcoin exchange reserves have fallen to a 21-month low, a possible sign investors are feeling bullish about the shape of the market.

Why You Shouldn’t Donate Bitcoin Without Tax Planning (Forbes)
Careful consideration must be undertaken by an individual when it comes to planning for tax deductions via charity donations. Failing to do so means one could risk losing out to beneficial tax relief.

– Sebastian Sinclair

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Expobank, the former Russian subsidiary of global investment bank Barclays has followed Silvergate and issued out a loan that uses tokens, in this case, WAVES, as collateral.

The loan was made to an entrepreneur and tax consultant, Mikhail Uspensky, who bought WAVES in 2018 for a planned initial coin offering (ICO). When that fell through he tried staking them, before ultimately deciding to negotiate a token-collateralized loan with Expobank – who, it turns out, was receptive to experimenting with new loan issuances.

The tokens are now being held by a third-party notary. The loan amount, as well as the terms of the agreement, have not been disclosed.

Related: Russia, With Bitcoin Playing Bit Part, Tried to Hack 2016 US Election, Senate Report Finds

Barclays acquired Expobank for $745 million, months before the 2008 financial crisis. The new Russian subsidiary failed to gain much traction in its home market and the U.K. investment bank sold it on to notable local banker Igor Kim for an undisclosed sum in early 2019.

See also: Banks in US Can Now Offer Crypto Custody Services, Regulator Says

Expobank’s dabble in token collateralized loans comes after Silvergate said it had issued a total of $22.5 million worth of loans collateralized by bitcoin in July. The California-based bank only started offering them to clients in January.

Just a few weeks ago, Russia passed a law – that comes into force next January – that will regulate centrally-issued digital securities and also defined cryptocurrencies as a form of taxable property that can’t be used as a payment method.

Related: Russian Financial Crime Agency Plans AI Tool to Link Crypto Transfers to Users

A bank spokesperson told CoinDesk the test had been successful and they would watch regulatory trends to estimate future demand for these products.

See also: Coinbase to Offer Bitcoin-Backed Loans to US Customers

The move might help make Expobank more attractive to borrowers and help push it up Russia’s banking rankings: it’s loan portfolio currently languishes at 54 nationwide.

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• Following OCC Letter, Some US Banks Appear Open to Providing Crypto Services
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Bitcoin (BTC) could be set for an imminent retracement as the uptrend that had its origins in March’s “Black Thursday” crash now looks to be running out of steam. 

Singapore-based QCP Capital warned its Telegram subscribers Wednesday that bitcoin was showing signs of “lethargy” as it struggled to capture any new highs. Bitcoin fell below the key $12,000 milestone on Tuesday, pouring cold water on hopes earlier this week for a major bullish breakout.

Daily chart

Bitcoin jumped above $12,400 on Monday, confirming an ascending triangle breakout and signaling a continuation of the rally from the July lows of sub-$9,000. 

Related: Market Wrap: Bitcoin Slides to $11.8K; Uniswap at $7M in Monthly ETH Fees

But the breakout failed to invite stronger buying pressure and prices fell below $12,000 on Tuesday, invalidating the bullish setup. Chart analysts consider a failed breakout as a sign of bullish exhaustion – a slowing of price gains usually coupled with weakening buying pressure.

“Monday’s breakout of $12,000 was almost entirely short-squeeze driven, and the resultant failure just ahead of larger offers [sell orders] at $12,500 has solidified the price range of $12,000-$12,500 as a key resistance area for an extended period,” QCP Capital said.

Bitcoin may have a tough time establishing a foothold above $12,500 in the near term, as bullish positioning in the market is starting to look overstretched, QCP Capital said.  

Open interest in bitcoin futures on major exchanges rose to record highs of just under $6 billion on Monday, up 200% from the March low of $1.93 billion, according to data source Skew. 

Related: Dust Attacks Make a Mess in Bitcoin Wallets, but There Could Be a Fix

Such bloated bullish positioning often leads to deeper price pullbacks – more so, in cases where it’s accompanied by overbought readings on technical indicators. That seems to be the case as the weekly chart relative strength index has crossed above 70, a sign the rally may be overdone.

Chris Thomas, head of digital assets at Swissquote Bank, also thinks the rally in both BTC and DeFi-related coins has gone too far. “It’s natural that we are seeing profit-taking and weak buying at higher levels,” Thomas said in a LinkedIn chat.

Bitcoin is trading near $11,800 at press time, representing a 3.4% drop on a 24-hour basis, according to CoinDesk’s Bitcoin Price Index. The cryptocurrency is feeling the pull of gravity after failing to keep gains above $12,000 for the second time in three weeks and may suffer a bigger drop if support near $11,600 is breached.

“On the short-term charts, we see $11,600-$11,700 level as the new key short-term pivot to watch, failing which we will likely get our anticipated retest of $11,000,” QCP Capital noted. That said, the broader outlook will remain bullish, as long as prices are held above the former resistance-turned-support of $10,500 – originally the February high. 

A sell-off below that key support looks unlikely as inflation expectations in the U.S. are rising as rumors abound that the Federal Reserve may soon signal tolerance for higher inflation – meaning the central bank would keep interest rates low even if inflation rises above 2% target.

It’s probably no coincidence that bitcoin’s correlation with gold – the classic inflation hedge – has started to strengthen in recent weeks.

Related Stories

• First Mover: Bitcoin Passes $12K, Dollar Worries Grow, OMG Jumps, Portnoy’s Orchid #Pump
• Bitcoin Holding Sentiment Strongest in Nearly Two Years

Bitcoin (BTC) could be set for an imminent retracement as the uptrend that had its origins in the Black Thursday crash now looks to be running out of steam. 

Singapore-based QCP Capital warned its Telegram subscribers Wednesday that bitcoin was showing signs of “lethargy” as it struggled to capture any new highs. Bitcoin fell below the key $12,000 milestone on Tuesday – pouring cold water on hopes earlier this week for a major bullish breakout.

Daily chart

Bitcoin jumped above $12,400 on Monday, confirming an ascending triangle breakout and signaling a continuation of the rally from the July lows of sub-$9,000. 

Related: Market Wrap: Bitcoin Slides to $11.8K; Uniswap at $7M in Monthly ETH Fees

But the breakout failed to invite stronger buying pressure and prices fell below $12,000 on Tuesday, invalidating the bullish setup. Chart analysts consider a failed breakout as a sign of bullish exhaustion – a slowing of price gains usually coupled with weakening buying pressure.

“Monday’s breakout of $12,000 was almost entirely short-squeeze driven, and the resultant failure just ahead of larger offers [sell orders] at $12,500 has solidified the price range of $12,000-$12,500 as a key resistance area for an extended period,” QCP Capital said.

Bitcoin may have a tough time establishing a foothold above $12,500 in the near term, as bullish positioning in the market is starting to look overstretched, QCP Capital said.  

Open interest in bitcoin futures on major exchanges rose to record highs of just under $6 billion on Monday – up 200% from the March low of $1.93 billion, according to data source Skew. 

Related: Dust Attacks Make a Mess in Bitcoin Wallets, but There Could Be a Fix

Such bloated bullish positioning often leads to deeper price pullbacks – more so, in cases where it’s accompanied by overbought readings on technical indicators. That seems to be the case as the weekly chart relative strength index has crossed above 70 – a sign the rally may be overdone.

Chris Thomas, head of digital assets at Swissquote Bank, also thinks the rally in both BTC and DeFi-related coins has gone too far. “It’s natural that we are seeing profit-taking and weak buying at higher levels,” Thomas said in a LinkedIn chat.

Bitcoin is trading near $11,800 at press time, representing a 3.4% drop on a 24-hour basis, according to CoinDesk’s Bitcoin Price Index. The cryptocurrency is feeling the pull of gravity after failing to keep gains above $12,000 for the second time in three weeks and may suffer a bigger drop if support near $11,600 is breached.

“On the short-term charts, we see $11,600-$11,700 level as the new key short-term pivot to watch, failing which we will likely get our anticipated retest of $11,000,” QCP Capital noted. That said, the broader outlook will remain bullish, as long as prices are held above the former resistance-turned-support of $10,500 – originally the February high. 

A sell-off below that key support looks unlikely as inflation expectations in the U.S. are rising as rumors abound that the Federal Reserve may soon signal tolerance for higher inflation – meaning the central bank would keep interest rates low even if inflation rises above 2% target.

It’s probably no coincidence that bitcoin’s correlation with gold – the classic inflation hedge – has started to strengthen in recent weeks.

Related Stories

• First Mover: Bitcoin Passes $12K, Dollar Worries Grow, OMG Jumps, Portnoy’s Orchid #Pump
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The Financial Conduct Authority (FCA) has granted several licenses to digital securities exchange and custodian Archax – making it one of the world’s first authorized trading spaces for the asset-class.

• Archax said Wednesday it was now licensed as a multilateral trading facility (MTF) exchange, a broker, a cash and asset custodian.
• It is also the first crypto-asset firm to be registered with the FCA – a designation that will soon be mandatory for all companies working in the digital asset space from January next year.
• The London-based exchange, which is orientated towards institutions, is now authorized to host offerings, act as a trading venue as well as custody digital securities.
• Co-founder and CFO Matthew Pollard told CoinDesk Archax had become a “one-stop-shop” for the still-nascent digital securities space.
• A digital security is a catch-all term for traditional assets, such as equity or debt, that has been tokenized and put on the blockchain.
• The upshot from Wednesday’s announcement is that institutions will be able to trade digital securities on an authorized market for the very first time in the U.K.
• Archax CEO Graham Rodford said the exchange now had 35 issuances in the pipeline.
• Pollard said that Archax employed its own specific admissions criteria for the type of digital securities it would allow on its platform.

See also: UK Financial Service Provider to Coinbase, Bitstamp Awarded FCA Payments License

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• $200m Staked in YAM-Inspired DeFi Protocol in Under 12 Hours
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The yield-farming craze continues: Investors have poured $200 million into a meme coin that’s barely 12 hours old, has no public figurehead or any audited code.

• Spaghetti Money offers staking pools in several DeFi tokens, including yEarn (YFI), Maker (MKR), and Compound (COMP).
• Launching 10 hours ago, investors have so far staked a total of $203 million in digital assets into its protocol. Total value locked (TVL) had surged by $3 million just as CoinDesk was going to press.
• Spaghetti doesn’t have a public team nor has its code been audited. Some of the code for staking rewards came from YAM – another yield farming protocol that went up in a fireball last week.
• There’s also a native PASTA token – that has no function since there isn’t a governance model – that will be publicly distributed through a staking pool sometime in the next seven days.
• Spaghetti is the latest in a series of “meme” coins that come up overnight with a catchy name and emoji to attract traders to stake millions of dollars into their pools.
• There’s now a prediction on decentralized survey site Prediqt betting Spaghetti will attract a total of $500 million TVL within the first 36 hours – something it’s currently on track to make.
• On Twitter, founder Robert Leshner of Compound, the first protocol to experience a yield farming craze, said that if Spaghetti’s TVL hits $500 million then “the industry needs to self-regulate and stop launching these meme farming games.”
• The protocol’s Twitter account caused confusion after it said Spaghetti was an ETC20 – rather than ERC20 – leading some to think it was launching on Ethereum Classic. The erroneous tweet hasn’t been corrected.

See also: DeFi-Yield-Hunting Token YFI Explodes to $11K From $32 in One Month

Related Stories

• First Mover: Money Legos Turn ‘Exuberant’ as Chainlink Stripped of ‘DeFi’
• UK Regulator Grants License to Digital Security Exchange Archax
• Riot Supercharges Mining Ops With 8,000 More Bitmain Rigs as Bitcoin Price Soars
• Blockchain Privacy Firm HOPR Releases Mixnet Hardware Node for Ethereum

The yield-farming craze continues: investors have poured $200 million into a meme coin that’s barely 12 hours old, has no public figurehead, or any audited code.

• Spaghetti Money offers staking pools in several DeFi tokens, including yEarn (YFI), Maker (MKR), and Compound (COMP).
• Having only launched ten hours ago, investors have so far staked a total of $203 million in digital assets into its protocol. Total value locked (TVL) had surged $3 million just as CoinDesk was going to press.
• Spaghetti doesn’t have a public team nor has its code been audited. Some of the code for staking rewards came from YAM – another yield farming protocol that went up in a fireball last week.
• There’s also a native PASTA token – that has no function since there isn’t a governance model – that will be publicly distributed through a staking pool sometime in the next seven days.
• Spaghetti is the latest in a series of “meme” coins that come up overnight with a catchy name and emoji to attract traders to stake millions of dollars into their pools.
• There’s now a prediction on decentralized survey site Prediqt betting Spaghetti will attract a total of $500 million TVL within the first 36 hours – something it’s currently on track to make.
• On Twitter, Compound founder Robert Leshner, the first protocol to experience a yield farming craze, said that if Spaghetti’s TVL hits $500 million then “the industry needs to self-regulate and stop launching these meme farming games.”
• The protocol’s Twitter account caused confusion after it said Spaghetti was an ETC20 – rather than ERC20 – leading some to think it was launching on Ethereum Classic. The erroneous tweet hasn’t been corrected.

See also: DeFi-Yield-Hunting Token YFI Explodes to $11K From $32 in One Month

Related Stories

• UK Regulator Grants License to Digital Security Exchange Archax
• Riot Supercharges Mining Ops With 8,000 More Bitmain Rigs as Bitcoin Price Soars
• Blockchain Privacy Firm HOPR Releases Mixnet Hardware Node for Ethereum
• Binance-Owned WazirX Announces DeFi Project With Matic

Riot Blockchain is buying 8,000 additional S19 Pro Antminers from BitmainTech PTE as the publicly traded company looks to compete in a bitcoin mining scene getting more difficult by the day.

• Miners are flocking to take advantage of bitcoin’s recent price surge. But they can only do so by deploying massive operations, as evidenced by all-time high network difficulty rates and recent rig acquisitions.
• Once fully online in early 2021, the rigs will vault Riot Blockchain’s hashrate – the computing power dedicated to mining bitcoin blocks – well above 1 exahash per second, according to a Monday press release.
• Riot Blockchain says it will have 15,040 deployed rigs posting 1.45 exashashes per second and consuming 47 megawatts of energy once it installs the Antminers.
• But that day won’t come until next April at the earliest. Bitman will begin delivering 2,000 S19 Pro Antminers per month starting in January 2021.
• Riot is spending $17.7 million on the rigs. It’s a bulk discount that Riot says comes in spite of bitcoin’s rocketing valuation.
• “With our current miner deployment schedule, we anticipate that based upon current factors, Riot would achieve positive cash flow in late 2020,” Chairman Remo Mancini said in the statement.

Related Stories

• Blockchain Privacy Firm HOPR Releases Mixnet Hardware Node for Ethereum
• One Small Step for Bitcoin – SpaceChain Secured Transfer From International Space Station
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Bitcoin’s prices were off from Monday’s high. Meanwhile, high fees on Ethereum helped decentralized exchange Uniswap rake in $7 million over the past month.

• Bitcoin (BTC) trading around $12,002 as of 20:00 UTC (4 p.m. ET). Slipping 2.8% over the previous 24 hours.
• Bitcoin’s 24-hour range: $11,825-$12,412
• BTC below its 10-day and 50-day moving averages, a bearish signal for market technicians.

Read More: Bitcoin Mining Pools See Hashrate Drop Amid Rainstorms in China

After hitting a 2020 high Monday, bitcoin dipped to as low as $11,825 on spot exchanges such as Coinbase on Tuesday. Seychelles-based BitMEX saw plenty of action during this price rise and fall, as both long and short traders were wiped out in automatic liquidations, the crypto equivalent of a margin call. During Monday’s sharp price rise, BitMEX liquidated short traders by as much as $10 million in one hour. During Tuesday’s decline, long traders were wiped out at a rate of $6.7 million in an hour. 

Related: Dust Attacks Make a Mess in Bitcoin Wallets, but There Could Be a Fix

Many traders, including Andrew Tu of quant trading firm Efficient Frontier, see $12,000 as “resistance” or a price level that is tough to overcome but when it is, bitcoin can break to higher territory. 

“Bitcoin finally broke its $12,000 resistance Monday,” said Tu. “Now it’s on to $13,000 and $14,000 as resistance, assuming that we can hold above $12,000.” 

Bitcoin’s price was just under $12,000 as of press time after the selling pressure earlier. 

Michael Rabkin of Chicago-based trading firm DV Chain told CoinDesk both retail and institutional interests are fueling fresh bitcoin highs, and the asset is headed higher. “Bitcoin’s popularity is growing in the mainstream media and with traditional investment firms as the U.S. continues its stimulus,” he told CoinDesk.“Even though this can’t last forever there is no end in sight, so people are looking for alternatives” to the U.S. dollar, Rabkin added.

Related: First Mover: Bitcoin Passes $12K, Dollar Worries Grow, OMG Jumps, Portnoy’s Orchid #Pump

Indeed, the U.S. Dollar Index, a measure of the greenback’s strength relative to a basket of other currencies, is at an over-two-year low Tuesday as the coronavirus-inflicted global economy continues to cause problems for the American economy.

Every time bitcoin’s price moves higher over the remaining months of an uncertain 2020, there will be renewed investor interest in crypto, added Efficient Frontier’s Tu. “It’s all part of this current bull cycle we’re in,” Tu said. “It’s a positive feedback cycle in which double-digit rises cause more retail and professional investors to jump in, which begets further rises.”

Read More: Bitcoin Holding Sentiment Strongest in Nearly Two Years

Uniswap first in ETH fees

Ether (ETH), the second-largest cryptocurrency by market capitalization, was down Tuesday at around $424 and slipping 2.7% in 24 hours as of 20:00 UTC (4:00 p.m. ET). 

Read More: DeFi-Yield-Hunting Token YFI Explodes to $11K From $32 in One Month

The decentralized exchange, or DEX, Uniswap V2 has crossed $7 million in fees collected over the past month. It is currently number one on the Ethereum network, according to fee tracker ETH Gas Station. The DEX also dominates the market for trading volume, at $233 million in the past 24 hours and over 60% of market share.

George Clayton, managing partner of alternative asset firm Cryptanalysis Capital, says Ethereum’s growth is “crazy.” He noted the second company on Ethereum’s fee rankings, Tether, rakes in $6.3 million in fees per month and is deployed on other blockchains. “Tether is the only major project to spread out on other blockchains,” Clayton said. “I’m a bit surprised others haven’t followed yet given Ethereum’s gas problems. Something has to give.” 

Other markets

Digital assets on the CoinDesk 20 are mostly in the red Tuesday. Notable winners as of 20:00 UTC (4:00 p.m. ET): 

• basic attention token (BAT) + 13.9%
• nem (XEM) + 4.5%

Read More: Elliptic Adds Monitoring Support for Binance Chain and BNB

Notable losers as of 20:00 UTC (4:00 p.m. ET): 

• chainlink (LINK) – 13.6%
• bitcoin gold (BTG) – 7.6%
• tezos (XTZ) – 5.4%

Read More: Chainlink Up Nearly 1,000% Since ‘Black Thursday’ Crash

Equities:

• Asia’s Nikkei 225 closed in the red 0.20% as tensions between the U.S. and China were cause for investor concern in Tokyo.
• In Europe, the FTSE 100 ended the day slipping 0.50% as concerns about rising coronavirus cases spooked investors.
• The United States’ S&P 500 gained 0.30% to an all-time high of 3,386.15 as the index regained all of its losses from March's crash.

Read More: Dust Attacks Make a Mess in Bitcoin Wallets, but There Could Be a Fix

Commodities:

• Oil is down 0.37%. Price per barrel of West Texas Intermediate crude: $42.57.
• Gold was in the green 1% and at $2,001 as of press time.

Read More: The OCC’s Crypto Custody Letter Was Years in the Making

Treasurys:

• U.S. Treasury bonds all slipped Tuesday. Yields, which move in the opposite direction as price, were down most on the two-year, in the red 5.3%.

Read More: Bitcoin Mining Pools See Hashrate Drop Amid Rainstorms in China

Related Stories

• Bitcoin Holding Sentiment Strongest in Nearly Two Years
• Chainlink Up Nearly 1,000% Since ‘Black Thursday’ Crash

Decentralized privacy startup HOPR has released its first “customized HOPR Hardware Node,” which the startup says removes any reliance on cloud servers predominantly controlled by Amazon and Alibaba. 

• HOPR uses a token-incentivized mixnet solution, essentially doing the same for blockchain as Tor (the onion router) or a virtual private network (VPN) do on the internet. The mixnet node combines running an Ethereum node with next-level data privacy.
• It’s the first hardware product released by a data privacy company in the blockchain space, the company said in a statement. (Other types of crypto firms have pursued similar hardware offerings, including Filecoin and Helium.)
• HOPR is not the first company to use blockchain tokens to incentivize participants to enhance the privacy of a network, however. Competition in this area is currently ramping up with the likes of Orchid protocol, also based on Ethereum, seeing its token recently surge in value.
• HOPR’s plug-and-play, blockchain-ready node is being sold at $400 with an 8GB RAM and 1TB of SSD storage. The company is only making 100 HOPR Hardware Nodes available for the initial release.
• Last month HOPR announced a $1 million funding round led by Binance Labs.

Read more: Binance Labs Leads $1M Seed Round in Crypto Tor Alternative HOPR

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• DeFi-Yield-Hunting Token YFI Explodes to $11K From $32 in One Month

The Mumbai-based crypto exchange WazirX, one of the biggest in India, recently announced it is developing a decentralized finance (DeFi) product in partnership with Matic Network, a blockchain scalability platform. 

“We are launching an automated market maker (AMM) protocol and partnering with Matic Network to launch the protocol”, the exchange, a subsidiary of Binance, said in a blog post on Saturday.

Automated market makers are algorithmic agents that make it easier to list and exchange cryptocurrencies without the help of an order book.

Related: DeFi-Yield-Hunting Token YFI Explodes to $11K From $32 in One Month

AMM-based decentralized exchanges (DEXs) like Uniswap, which enable running of openly accessible, on-chain liquidity pools for different tokens, have witnessed staggering growth in trading volumes over the past few months.

“The DeFi movement has picked up globally and WazirX plans to make it easy for billions of Indians to participate in the DeFi ecosystem,” WazirX said.

Lowering the gas

The exchange, however, has opted for Matic instead of Ethereum’s network, which is currently dominating the DeFi space. “High gas costs [transaction fees] and scalability on Ethereum are definitely concerns that made us choose Matic, which offers high speed,” Nischal Shetty, CEO of WazirX, told CoinDesk in a Telegram chat.

Indeed, costs of executing transactions on Ethereum’s blockchain are up over 3,000% on a year-to-date basis. More recently, the average transaction fee rose to five-year highs above $6.

Related: Binance Credited With Helping Take Down Ukraine Crypto Laundering Group

Also read: Decentralized Finance Frenzy Drives Ethereum Transaction Fees to All-Time Highs

Fees are relatively low on Matic’s network. “Their Reddit proof-of-concept showed 3 million transactions at a cost of [a] mere $4 and the side chains have shown throughput of 7,200 transactions per second, which is very promising for the scale WazirX wants to achieve with its AMM-based DEX,” the exchange said in its blog post.

WazIrX, which was acquired by the global cryptocurrency exchange and blockchain ecosystem Binance last year, plans to launch the testnet of its AMM in September.

“The DeFi project is WazirX’s initiative,” said Shetty, adding that “we are glad to have support from the Binance team. It’s a huge advantage to be a part of the ecosystem.”

Also read: India May Be Starting Its Biggest Bitcoin Bull Run Yet

Trading volumes on cryptocurrency exchanges serving Indian citizens have soared since the Supreme Court lifted the Reserve Bank of India’s ban on crypto transactions in March. The weekly bitcoin peer-to-peer transaction volumes have doubled to over 300 million rupees ($4 million). 

Related Stories

• Elliptic Adds Monitoring Support for Binance Chain and BNB
• Market Wrap: Bitcoin Cracks $12.4K; DeFi Crosses $6B Locked

SpaceChain, the U.K. crypto firm with extraterrestrial aspirations, secured a bitcoin transfer with its multi-signature transaction hardware orbiting Earth every 90 minutes.

• SpaceChain’s International Space Station-hosted (ISS) hardware authorized a 0.0099 BTC (about $92 at the time) transfer initiated by Chief Technology Officer Jeff Garzik on June 26, the decentralization company disclosed Tuesday.
• Developed by GomSpace and installed on the ISS on June 25, that hardware holds a private key needed to verify blockchain transactions via the “multi-signature” technique.
• Data can only reach the ISS via the craft’s encrypted ground station links. SpaceChain says this adds security and resilience to transaction authorizations.
• Representatives did not immediately answer CoinDesk’s questions as to why a transaction initiated on June 26 was only made public nearly two months later.
• Although the ISS hardware cannot communicate with other crafts, SpaceChain hopes to build and launch robust decentralized blockchain infrastructure that can do so.

Read more: A Bitcoin Wallet Is Orbiting the Earth at 5 Miles Per Second

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• DeFi-Yield-Hunting Token YFI Explodes to $11K From $32 in One Month
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• Crypto Exchange LGO Integrates With Fireblocks to Speed Up Trading Times

Ferrari sells cars so it can go racing; Bequant built a crypto exchange to get into prime brokerage.

That’s the analogy offered by the firm’s head of institutional services, Alex Mascioli, when asked about a new banking relationship with Signature’s blockchain-based payments platform, Signet, first revealed to CoinDesk this week.

Prime brokerage, Mascioli said, was always Bequant’s race to win.

Related: Coinbase to Offer Bitcoin-Backed Loans to US Customers

Prime brokers are facilitators for financing and trading for deep-pocketed institutional investors. While the digital asset space doesn’t have a lot of prime broker options currently, several crypto firms including Coinbase, BitGo and Genesis Trading have announced in recent months their intent to build prime brokerage wings.

Bequant was building a prime brokerage service for crypto before it was cool, said CEO George Zarya.

Read more: Behind ‘Prime Broker’ Buzzword Lies a Complex Strategy Game for Crypto Firms

“When we started building the prime brokerage product almost two years ago, nobody was doing it,” Zarya said. “There were a couple of players that called themselves prime brokers, but what they were doing was aggregating liquidity.”

Related: Decentralized Exchange dYdX Debuts Ether Perpetual Swaps

To compete in a newly crowded market, Bequant’s connection to Signature Bank’s Signet will allow the firm to more easily settle fiat for more clients. Bequant is also connected to the Silvergate Exchange Network, Globitrex Exchange and U.K.-based electronic money institution BCB Group, Zarya said. 

“It’s an important transition between the legacy financial markets and the new digital markets,” he added. 

The variety of banking and payments relationships allows Bequant to serve clients that use a variety of onramps to the U.S. dollar, because no U.S. bank has emerged as a clear leader in the digital asset space, Zarya said. 

The firm now boasts a list of services that includes capital introduction, fund administration, securities lending, multi-exchange direct market access, custody, collateral management, leveraged trade execution, over-the-counter block trading, risk management and smart order routing.

According to Zarya, clients care most about easy access to spot and derivatives markets, lending, managing collateral across exchanges, having analytics on top of their portfolios and APIs that can let them connect to multiple exchanges at once. The products that cost the most for the firm to build were custody and collateral management, he added. 

Investor access

Blockforce Capital CEO Eric Ervin said capital introduction is where prime brokers in traditional markets can stand out. (Ervin uses Tagomi as Blockforce’s prime broker.) In the traditional world, investment banks like Goldman Sachs and Morgan Stanley connect clients to hedge funds, pension funds and endowments.

Bequant is connected to 11 sources of liquidity currently including HitBTC, Binance, OKex, Huobi, Bittrex, Bitifnex, Deribit and Bequant’s own exchange and plans to expand it’s exchange connections to a dozen by the end of the year. The other four sources of liquidity are unnamed OTC desks.

“These exchanges are venues that our team has one-on-one relationships with,” Mascioli said. “This isn’t as simple as dropping in APIs.”

Read more: Bequant Launches Crypto Prime Brokerage to Compete for Institutional Money

When Bequant launched its exchange two years ago, Zarya said he recognized there was a need for an institutional-grade exchange offering high-frequency trading services. Most exchanges are still built to serve primarily retail customers, he added, meaning their infrastructure struggles to keep up with high trading volumes.

“One of the issues that we’ve had with some of our exchanges is the rate per second allocation,” Zarya said. “If you trade a high-frequency trading strategy, you may want to opt into a higher rate-per-second allocation.” Bequant’s internal trading averages around 400 microseconds per trade, which is close to the London Stock Exchange’s 150 microseconds.

The firm is currently planning to raise a round of venture capital to beef up operating capital on its lending side. 

“We’ve managed to build a great product by bootstrapping,” Zarya said. “Our exchange business turned profitable within the first 12 months. … It took us about $2.5 million to get it up and running.” Zarya expects the prime brokerage side of the business to be profitable within the next six months.

Related Stories

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The U.S. Senate Select Committee on Intelligence highlighted bitcoin’s limited role in Russia’s 2016 election hacking campaign in a report that reaffirmed the U.S. intelligence community’s conclusion the Kremlin worked to put Donald J. Trump in the White House in 2016.

• Released Tuesday in redacted form, the final report added new details and accusations to U.S. authorities’ broad-based belief that Russia used disinformation, hacking and tactical leaks to bolster then-candidate Trump’s presidential bid.
• But it also revealed the sometimes salacious role cryptocurrency played in helping the Russians execute their influence campaign.
• For example, the report suggests jailed Russian spy Maria Butina, whose fling with Overstock CEO Patrick Byrne led to the crypto booster's August 2019 ouster, may have attended a 2015 libertarian convention discussion on bitcoin that Byrne led.
• “[Byrne’s] remarks about the coming ‘electronic’ changes in our 21st century economy were exciting,” read a draft email between businessman Paul Erickson and Butina that the committee obtained.
• Butina told the committee that “someone was talking about bitcoin, and there were some ideas that I wanted to discover” at the conference, but never specifically named Byrne.
• The write-up also reiterated crypto allegations previously revealed in past reports and indictments, including those released in the wake of the report by Special Prosecutor Robert Mueller.
• Bitcoin payments paid for the “DCLeaks.com” domain that hosted leaked DNC emails, as well as the virtual private servers Russia’s GRU used during their spear-phishing campaign, the report said.
• That bitcoin was new, too: The Russians are said to have mined it themselves.

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• DeFi-Yield-Hunting Token YFI Explodes to $11K From $32 in One Month
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• Crypto Exchange LGO Integrates With Fireblocks to Speed Up Trading Times

The governance token for yEarn.finance (YFI) has shot up over 32,000% since mid-July as investors have poured hundreds of millions into its protocol, which identifies and exploits some of the best opportunities in the white-hot decentralized finance (DeFi) space. 

• CoinGecko data shows YFI tokens shot up to nearly $11,250 on Tuesday before giving back some gains: they were just $32 when they started trading on July 18.
• As the graph below shows, YFI soared past $1,000 the day after launching and was already worth $4,000 by the start of August.
• Investors have poured hundreds of millions into yEarn since it launched mid-May. On July 18, the protocol had $9.3 million in total value locked; at press time there were over $600 million, according to DeFi Pulse.
• After a relative lull, the token doubled from $5,500 on Sunday to over $11,000 earlier Tuesday before dropping over $1,500 to $9,800 as this article was going to press.

• In yEarn, investors deposit digital assets into the protocol which identifies and executes various DeFi trading strategies, offering ROIs of up to 95% on their holdings – the platform taking 5% of total yield as fees.
• As a governance token, users can stake YFI in order to determine the overall direction of the protocol along with other token holders.
• Helping drive demand is the scarcity of the tokens. There are only 30,000 YFI tokens – a $300 million market cap – with the vast majority already circulating in the ecosystem.
• yEarn founder Andre Cronje told CoinDesk the price rise likely came from a combination of scarcity and the fact traders were using YFI in some of the other DeFi protocols.
• Many big holders, such as Framework Ventures, are now hoarding YFI tokens for the staking rewards – increasing supply pressures still further, he said.

See also: YAM’s Market Cap Falls From $60M to Zero in 35 Minutes

Related Stories

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• One Small Step for Bitcoin – SpaceChain Secured Transfer From International Space Station
• Russia, With Bitcoin Playing Bit Part, Tried to Hack 2016 US Election, Senate Report Finds
• Binance Credited With Helping Take Down Ukraine Crypto Laundering Group

Floods are dampening bitcoin mining hashrates, Ethereum Classic may be thrown off its most popular exchange and bitcoin is moving off exchanges.

You’re reading Blockchain Bites, the daily roundup of the most pivotal stories in blockchain and crypto news, and why they’re significant. You can subscribe to this and all of CoinDesk’s newsletters here. 

Top shelf

Flooded network
Major Chinese bitcoin mining pools are each seeing daily hashrate drops of between 10% and 20% following continuous rainstorms in Sichuan. China’s southwestern Sichuan province, estimated to have over 50% of the Bitcoin network’s total computing power, has been hit by heavy rainstorms since last week. Data from BTC.com shows the world’s top four bitcoin mining pools – PoolIn, F2Pool, BTC.com and Antpool, all based in China – have each seen their hashrates drop between 10% and 20% over the last 24 hours. 

Related: First Mover: Bitcoin Passes $12K, Dollar Worries Grow, OMG Jumps, Portnoy’s Orchid #Pump

Exchanging patterns
Bitcoin exchange reserves have fallen to a 21-month low. Data shows the number of bitcoins held in exchange addresses fell by 0.83% to 2,610,278 BTC on Monday – the lowest level since Nov. 24, 2018. Some view this an indicator investors feel is bullish about the market. Investors tend to move digital assets from their wallets onto exchanges when they lose confidence in the current price movement, as happened during the Black Thursday sell-off, when bitcoin crashed by 40% and exchange balances surged by 2%. Bitcoin is now riding a 13-month high.

Is ETC OK?
OKEx, the exchange with the highest trading volume of ethereum classic (ETC), is considering delisting the cryptocurrency after two recent 51% attacks drained $5.6 million from its coiffures. “Given ETC’s popularity and standing, we are not rushing into delisting… We also do not want to foot the bill for ETC’s security vulnerabilities that have made it particularly susceptible to attack(s),” said Jay Hao, chief executive of the exchange. It’s assumed the hacker used OKEx during the attacks because of its ETC liquidity. The exchange has since increased confirmation times for ETC trades.

Chipping away
Investors suing chipmaker giant Nvidia for allegedly misreporting the size of its crypto mining-related revenue have complained the company is now trying to block key evidence from a former employee. The lawsuit, begun in 2018, alleges Nvidia downplayed the quantity of graphics cards sold to crypto miners. Shareholders have now told the court Nvidia’s lawyers had gotten the former marketing executive to “disavow” several key statements. Plaintiffs allege the former employee has retracted the testimony out of fear of retaliation.  

Crypto trusts
Grayscale Investments’ Bitcoin Cash Trust (BCHG) and Litecoin Trust (LTCN) crypto products are set to begin trading publicly on over-the-counter markets after receiving DTC eligibility Monday. The twin funds provide institutional and retail investors exposure to their namesake cryptocurrencies: bitcoin cash ($5.8 billion market cap) and litecoin ($4.3 billion market cap). The crypto trusts serve as a gateway for investors who lack the technical know-how or risk tolerance to hold coins themselves. (Grayscale is a subsidiary of Digital Currency Group, CoinDesk’s parent firm.)

Quick bites

• Binance Charity pledges $20,000 to Beirut explosion relief efforts (CoinDesk)
• Capital One files patent for AI social media tool to find crypto trading picks (CoinDesk)
• Game show winner loses $39,000 in BTC, Facebook scam (CoinDesk)
• Coinbase explains how it evaluates ERC-20 tokens for listing (The Block)
• A five-member board to control $36 million treasury for Zcash (Decrypt)

At stake

Related: Blockchain Bites: Bitcoin on DeFi and DeFi on Bitcoin

Last week, the Financial Times reported the coronavirus is driving bond trading digital. 

According to JPMorgan Chase’s Treasury trading desk, only 50% of pre-pandemic U.S. Treasury trades were carried out electronically. The figure has since increased to 70% in April and 77% in June. The trend is likely to continue, says JPMorgan. 

In times past, trades would be executed by “picking up the phone to negotiate with a human trader” or standing on the trading floor, the FT reports. This is no longer feasible due to hygienic concerns. 

Apart from cultural impediments, the bond market is resistant to digitization due to its sheer size. “In fact, there are only 43,000 stocks in the world, but there are millions of bonds, each with [its] own legal and financial idiosyncrasies,” the FT reported in 2018. 

But is a human touch necessary to make sense of trading debts? 

One of blockchain’s aims is to provide a sound foundation for the digital economy. To create unique and persistent digital representations of any asset or debt.

While still in its infancy, the blockchain bond industry has seen early success. Governments, nonprofits and corporations have all had successful trials or issuances using a blockchain. Most recently, Thailand’s Ministry of Finance announced plans to issue $6 million in debt.

Market intel

Peaked?
Bitcoin (BTC) was flat after jumping on Monday to a new 2020 high above $12,400. Analysts are speculating whether the largest cryptocurrency can hold the higher ground. The latest move up came on high volume, and it was a “convincing break,” Denis Vinokourov, head of research for the crypto prime broker BeQuant, told CoinDesk. Monday’s high was just 11% off the 2019 peak of $13,880. This insight came from First Mover. You can subscribe here. 

Tech pod

Second sleuth
Elliptic has added Binance Chain and its native payments token BNB to its monitoring platform, becoming only the second blockchain analysis company to do so. Starting Tuesday, Elliptic’s automated compliance, wallet monitoring and transaction tracing tools can all tap into Binance Chain activity. Binance executives said compliance is key to BNB adoption.  The SEC inked a deal with competing firm CipherTrace in July, specifically for its BNB tracing ability.

Op-ed

Dear banker
Ouriel Ohayon, CEO and co-founder of ZenGo, penned an open letter to all bankers urging them to experiment with crypto, professionally and personally. Crypto won’t supplant banks, but banks cannot survive the path they are on. “No one is asking you to change everything overnight. Just start somewhere, learn continuously, explore the rabbit hole, do some pilots. Start with more familiar territories like custodial exchanges and U.S. dollar-backed stablecoins, which are in high demand everywhere,” he writes.

Podcast corner

Inflated narratives?
Nathaniel Whittemore takes a look at the macroeconomic environment to discuss the countervailing forces affecting inflation in the latest edition of The Breakdown.

Who won #CryptoTwitter? Related Stories

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When dust settles in your home, you wipe it up. But what about when unwanted dust makes its way into your bitcoin wallet? Well, cleaning it up may not be so simple.

In Bitcoin parlance, “dust” is the technical term given to trace amounts of bitcoin that are considered too small to send in a transaction because the transaction fee would exceed the amount sent. Typically, dust is no more than a few hundred satoshis (a microunit of measurement for bitcoin).

Because sending dust is expensive relative to the transaction size, normal bitcoin users have no reason to transact with dust. But that doesn’t mean other entities, like bad actors or blockchain researchers, don’t have a use for it.

Letting the dust settle

Related: First Mover: Bitcoin Passes $12K, Dollar Worries Grow, OMG Jumps, Portnoy’s Orchid #Pump

Entities conducting blockchain analytics may use dust to deanonymize users and their wallet addresses. The idea is to create enough deterministic links between the analysis firm’s wallets and the recipient addresses. Once these links are created, the firm can run analysis using the data it collects to trace IP addresses to the recipient wallets. 

“When the dust is consolidated with the user’s other funds, it helps with chain analytics by making it easier to cluster addresses,” Sergej Kotliar, the CEO of Bitrefill, told CoinDesk. If users don’t consolidate the unspent transactions (UTXOs), then they don’t need to worry about their anonymity. However, most wallets automatically consolidate UTXOs when a user creates a transaction, so this can be tough to navigate around unless you are choosing which UTXOs to spend manually.

CoinDesk reached out to Chainalysis and CipherTrace to ask if they use dust in their analytics. Both companies denied using this technique, though Chainalysis Manager of Investigation Justin Maile added that dusting is “more often [used] by investigators” to trace illicit funds. Maile continued that exchanges may use dusting to trace stolen funds following a hack.

Read more: How Do Bitcoin Transactions Work?

Related: Bitcoin Holding Sentiment Strongest in Nearly Two Years

Dave Jevans, the CEO of blockchain analytics company CiphterTrace, told CoinDesk that “hackers may use dusting as a strategy for identifying individuals who can then be phished or extorted.”

The threat of anonymity aside, consolidating these UTXOs would mean spending more in fees than the dust is worth. The resulting dilemma then becomes: leave the too-piddling-to-spend UTXOs to clutter the wallet or consolidate them and thus compromise privacy. (It’s not uncommon for users to have their wallets dusted more than once by the same entity, leading to significant clutter. Phil Geiger, the director of marketing at Unchained Capital, for instance, told CoinDesk he has “had addresses dusted repeatedly.”)

Some wallets, like Samourai and Bitcoin Core, let you freeze UTXOs, which would bar them from being consolidated in a new transaction. But Kotliar emphasized that most average users will not know how to navigate this feature.

Raising dust limits?

To mitigate the impact dust has on the network, Kotliar has suggested raising the dust limit as designated by the Bitcoin Core wallet. Currently, most wallets are designed to cap transactions at 546 sats (0.00000546 BTC, or roughly 7 cents). 

“Blocking these would be censorship, but maybe raising the dust limit makes sense,” Kotliar said, adding that his proposal “is a way to raise the topic and have other people weigh in on it.”

If this limit were raised, then it would be more expensive to execute a dusting attack. But, of course, this comes at the detriment of honest users spending small sums. If bitcoin were to go up in price dramatically, then the dust limit would have to be recalibrated so as to not price out smaller accounts from sending transactions.

Read more: To Beat Online Censorship, We Need Anonymous Payments

“If the destructive action is cheaper than a constructive one, then we should fix it. In Bitcoin, we don’t have a way of censoring things we don’t like, but we can change these defaults to make it more expensive.”

Sergej Kotliar

Another fix, proposed some time ago by Bitcoin Core developer Peter Todd, involves wrangling dust UTXOs and spending them in a CoinJoin transaction to preserve privacy. In a back and forth on Twitter discussing Todd’s “dust-b-gone” proposal, a representative for Samourai indicated the privacy wallet is seriously considering adding such a feature in the future. 

The dust piles up

There’s no guarantee that raising the dust limit would clean this problem up for good.

“I’m not sure that raising the dust limit would prevent this,” Ergo, a pseudonymous analyst for OXT Research, told CoinDesk, though it would “certainly [be] a deterrent.”

Blockchain analysts, for example, may still be willing to stomach the premium to send dust if the limit is raised, especially if they have high-dollar contracts with government agencies. 

Still, it may deter some bad actors from wasting block space on trivial transactions. Bitcoin’s blockchain keeps a record of every transaction ever executed on the network, and there’s only so much space per block to accommodate new transactions; dust, then, causes unnecessary bloat on Bitcoin’s transaction ledger because blockspace that may have been used to accommodate legitimate, larger transactions is instead devoted to transactions worth pennies.

Read more: Inside Chainalysis’ Multimillion-Dollar Relationship With the US Government

And the pennies (or satoshis) add up. In the most recent dusting attack to hit the Bitcoin network, for instance, Ergo has traced some 84,000 dust outputs from 146 transactions to an entity that appears to be advertising an obscure Bitcoin SV messaging application. Each transaction includes a message directing users to the application. (Kotliar noted, “This does not appear to be a malicious attack.”) 

The apparent advertising campaign has cost the BSVers roughly 1.147 BTC, according to the most recent figures produced by Ergo, and the attackers have spent three times more on fees than the dust itself. Ergo told CoinDesk that this round of dusting began on Aug. 4 and has been “fairly consistent.”

Jensen mentioned that promotional dustings like this are not uncommon. At the end of 2018, for instance, 100,000 addresses were dusted as a way to advertise the now-defunct mixing service Bestmixer.

Related Stories

• Market Wrap: Bitcoin Cracks $12.4K; DeFi Crosses $6B Locked
• Bitcoin Surges Past $12,000 to New 2020 High

A federal banking regulator’s decision to let banks provide crypto custody services may have seemed out of the blue, but the agency has been looking at cryptocurrencies for years.

The Office of the Comptroller of the Currency (OCC) announced last month that federally regulated banks could provide services to crypto startups in addition to custody. It turns out the OCC was already leaning toward the move before Acting Comptroller Brian Brooks took the top job at the agency.

Indeed, the OCC has been examining the cryptocurrency space since at least 2018 and likely longer, said Jonathan Gould, senior deputy comptroller and chief counsel. He told CoinDesk that the very act of writing an interpretive letter typically takes months.

Related: Anchorage Is Streamlining Custody of Tokensoft’s ERC-1404 Security Tokens

“Before we actually put pen to paper that process can sometimes take a while,” he said. 

Read more: Banks in US Can Now Offer Crypto Custody Services, Regulator Says

The OCC’s interpretative letter last month opened the door for banks to provide services to crypto companies in addition to custody services for cryptocurrencies directly, but it’s unlikely that banks will immediately start providing either service. 

Rather, these letters are supposed to help banks that are also interested in crypto determine whether it makes sense for them to begin getting involved in the space, Gould said. 

Related: Unpacking the Avit, Avanti Bank’s New Digital Asset Being Built With Blockstream

Banks still need to ensure they have proper risk management practices and otherwise ensure they are prepared legally to offer these services before they can actually do so.

Iterative process

The process of creating an interpretive letter typically begins when a bank makes a request, or the OCC sees a number of similar requests from different institutions. 

The actual act of drafting interpretive letters can take weeks or months, Gould said.

“A lot of times we just provide informal advice, meaning advice about what we think is okay, and when we do [we do] so without putting anything in writing,” he said. “But sometimes we put things into these interpretive letter forms so again it’s a function of kind of the nature of the issue.”

The OCC looks at how many banks are asking about a specific issue or whether the regulatory agency itself thinks there might be a commonly held question, with these factors determining whether there will be an informal response or a formal letter.

Read more: ‘Inherently Borderless’: Acting OCC Chief Talks Crypto, State Licenses and DeFi

“The kind of process to actually write an interpretive letter like this one, that doesn’t necessarily take a huge amount of time,” he said. “But kind of thinking through the legal and other issues associated with an issue that can take a lot longer depending upon the complexity of the issue.”

The letter is just the beginning of a longer process. The OCC will interact with banks on their next steps if they do decide to pursue crypto services.

“There are a whole host of legal, regulatory and supervisory expectations that we have,” he said. “Especially with new activities that involve kind of iterative and interactive dialogue with the OCC supervisors, about how XYZ activity can be done in a safe and sound fashion, whatever risks are associated when activity can be appropriately kind of managed and so forth.”

The OCC has published more than 1,100 letters it believes are precedential or otherwise of interest to the general public.

Longer term

Gould did not say how long the OCC had been looking at last month’s interpretive letter on crypto services specifically, but reiterated that it could take the agency weeks or months to draft a 10-page letter. 

The OCC has been considering the legal and supervisory questions around crypto for years, he said, prior to Brooks joining the agency from his previous role at Coinbase. But Brooks has been able to bring specific knowledge about the crypto space to the agency.

“It is certainly the case, however, that because we have an Acting Comptroller who is exceptionally knowledgeable about these areas that has been hugely beneficial in terms of the agency’s thinking and understanding,” Gould said.

Read more: Following OCC Letter, Some US Banks Appear Open to Providing Crypto Services

Banks that are now interested in branching out into crypto should reach out to their local OCC supervisors if they have additional questions, and Gould said he hopes institutions that are looking at crypto reach out sooner than later.

“This is and will continue to be a learning process for us from a supervisory perspective and so we really need that engagement and welcome it on our end,” Gould said.

Related Stories

• Following OCC Letter, Some US Banks Appear Open to Providing Crypto Services
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On Aug. 13, a top official confirmed that the U.S. Federal Reserve is preparing for a digital currency.