CoinDesk Crypto

The U.S. Securities and Exchange Commission (SEC) wants to procure a blockchain forensics tool that can analyze smart contracts and, preferably, highlight their security issues.

• Issuing a “DLT Smart Contract Analysis Tool” solicitation request on July 30, the SEC signaled its newfound interest in actively monitoring the code-based blockchain contracts at the foundation of Decentralized Finance (DeFi).
• SEC wants a tool that can identify: contract purpose, token type, purchase and sale restrictions, address whitelists and blacklists, modifications and contract calls, according to documents reviewed by CoinDesk.
• Preferably, the tool will also “include the capability to analyze smart contracts for security issues and vulnerabilities,” the SEC said in documents accompanying the request.
• Comparative analysis between different smart contracts would also be a plus, SEC said. Private-sector software vendors have until Aug. 13 to pitch the watchdog.
• Bloomberg Law first reported the SEC’s interest in a smart contract tool.

See also: 605 Days Later: How ArCoins Got the SEC Go-Ahead as an Ethereum-Traded Treasuries Fund

Related Stories

• INX Scales Down US IPO Target to $127M – Still Set to Be Crypto’s Largest
• Chinese Ex-Banker Says Digital Currency Should Replace Fiat Money
• DeFi-Focused Derivatives Platform Hedget Raises $500K in Seed Funding
• French Judge Orders Trial of Alleged BTC-e Operator Alexander Vinnik

Perpetual swaps that track the price of ether (ETH) are coming to dYdX, the company announced Tuesday.

“The main reason people like trading these contracts is because people can trade them with pretty high leverage,” dYdX founder Antonio Juliano told CoinDesk in a phone call.

The decentralized finance (DeFi) firm was founded three years ago to contribute to the stack of financial products available in the crypto industry. It started with enabling margin trading on Ethereum and has now expanded to providing synthetic assets that enable traders to make bigger bets. This follows its launch of bitcoin perpetual swaps in April.

Related: There’s Now an Accelerator Exclusively for DeFi Startups

Read more: Popular BTC Derivatives Product Goes Live on DeFi’s dYdX

“The types of people who trade derivatives are really institutions and some sophisticated retail-type traders,” Juliano explained. “It basically helps people to express more complicated opinions on price, and this really helps to stabilize the underlying markets.”

As an example, with swaps, if people in the market see something they see as very unhealthy for ETH’s price, they can go onto dYdX and take out a 10x short position against the price of ETH, planning to profit $10 for ever $1 ETH’s price falls. This is a very dangerous play, because if the price goes up instead they lose $10 for every $1 it rises.

Such a position can very quickly eat all the trader’s collateral.

Related: Ethereum 2.0 Testnet Medalla Goes Live With 20,000 Validators

However, precisely because of that, it sends a strong signal to the market. If one trader takes that kind of position others will start looking to see if they should be scared, too. Obviously if someone sells their ETH that sends a signal to the market as well, but it’s a less weighty signal than a leveraged short position.

So theoretically, as the derivatives market gets bigger and more sophisticated it should help ETH itself become less volatile, as warnings come in earlier and sound more loudly.

“We’re not there yet,” Juliano cautioned. “With the rise of more derivatives products it should help.”

How it works

A leveraged derivative allows traders to magnify gains and losses on an asset without anyone involved holding the asset itself.

Popularized on the centralized exchange BitMEX, perpetual swaps are unique to the crypto market. They create a synthetic asset that, when working properly, roughly tracks the price of the underlying asset, while allowing more leverage. Market makers in the system make it feasible for traders to find buyers for their positions.

Read more: FTX Releases COMP Derivatives to Keep Up With DeFi Frenzy

A user’s losses are limited by the collateral they put up to back their bet. So if a user took a leveraged bet against the price of ETH, but the ETH price rose, they would get liquidated once their losses started approaching their total collateral. So for example, $300 ETH in collateral would only tolerate a bit less than $300 ETH in losses before the collateral was sold to cover the loss.

Juliano argued that dYdX’s product enables more leverage more easily than other DeFi alternatives, such as using Instadapp to take out multiple loans at once on Compound. Its users also won’t pay gas though they will pay trading fees.

Juliano said that trades on dYdX are among the largest for decentralized exchanges (DEXs), at around $10,000 on average.

In the traditional market, any derivatives market always dwarfs the underlying market it tracks, and Juliano noted that we’re starting to see that in crypto over the last year, with derivatives markets outpacing the spot market for the first time. However, in traditional finance, perpetual markets don’t exist. Derivatives usually come with an expiration date.

Juliano said he believes this is because there are so many traders who want to be able to magnify their bets with a product that’s roughly as simple to trade as the underlying asset.

“The crypto market is very dominated in terms of volume by retail traders, particularly international crypto traders,” he said.

Related Stories

• Genesis’ Crypto Lending Rebounds in 2Q; Firm Acknowledges Unsecured Loans
• DeFi-Focused Derivatives Platform Hedget Raises $500K in Seed Funding

The Chicago DeFi Alliance (CDA), which includes fintech firms Jump Trading, Cumberland DRW, CMT Digital, Volt Capital and others, is launching one of the first accelerator programs devoted entirely to decentralized finance (DeFi) startups beginning in August.

• Volt Capital co-founder Imran Khan and CDA partner Qiao Wang will lead the eight-week program for early-stage startups, plus a fast-track program to introduce more established startups to relevant experts. 
• Modeled after Silicon Valley’s Y Combinator program, the program will invest $120,000 in each participating team for future token purchases. Khan said the investment would be in “tokens at either seed or [a] discount” on what is already being traded publicly.
• There will be two accelerator batches in 2020, he said. Khan said CDA has received over 100 applications for the new accelerator and will choose seven startups for the first group.
• “Fees are high. Liquidity is low. [User interface] is messy. Settlement is slow. Everything feels like a toy. But history is full of examples of hugely successful technologies that started out looking like toys,” Wang said. “DeFi has all the fundamental qualities to become a real, trusted alternative to the legacy financial system.”
• In addition to the accelerator program, Khan said several new members joined the CDA, including Alameda Research, FTX, Electric Capital, Dragonfly Capital, Hashed and Delphi Digital.

Read more: Chicago’s Trading Firms Look to DeFi With New ‘Alliance’

Related Stories

• Decentralized Exchange dYdX Debuts Ether Perpetual Swaps
• Ethereum 2.0 Testnet Medalla Goes Live With 20,000 Validators
• DeFi-Focused Derivatives Platform Hedget Raises $500K in Seed Funding
• Matic Pledges $5M in Tokens to Entice DeFi Projects Into Building on Its Network

China’s bitcoin miners are in a rut, Ripple shows signs of sales growth and INX scaled down its IPO vision.

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 Market
China’s severe flooding, the worst in decades, hasn’t overwhelmingly impacted the bitcoin mining industry – but it’s still a difficult rainy season. Johnson Xu, chief analyst at Beijing-based research startup TokenInsight, said most mining facilities have chosen spots outside of flood plains. However, factors like bitcoin’s increased hashrate, lower price and the oversupply of bitcoin miners in the region have led to a daily revenue drop of 70% compared to last year. China’s bitcoin miner operations account for 65% of the global multi-billion dollar industry. 

Related: First Mover: As Fed Nears Inflation Rubicon, Analysts See $50K Bitcoin in Play

XRP Report
Ripple said it sold $32.55 million of its XRP cryptocurrency during Q2 2020, a 1,760% jump over Q1’s sales figures and the first signs of XRP sales growth in nearly a year. According to its most recent quarterly report, over-the-counter (OTC) XRP sales surged, spurred in part by liquidity-providing integrations with telco Swisscom Blockchain, swap execution facility Zero Hash and the crypto bank Sygnum. Average daily volume slumped to 196 million from Q1’s 322 million. Ripple’s programmatic sales program – made directly to exchanges – is still on pause. 

Back Backed
Litecoin creator Charlie Lee and Blockstream CEO Adam Back participated in a $3.1 million private security token offering (STO) for the online strategy game “Infinite Fleet.” The game is ​developed by Pixelmatic, founded by Samson Mow, who is also CSO at Bitcoin infrastructure firm Blockstream. Announced Friday, the round was broken into two parts, with $2.75 million raised via Simple Agreements for Future Tokens (SAFTs) and $250,000 raised through the investment platform BnkToTheFuture.

Yuan Over Yon?
Digital currency should replace fiat in China’s financial systems, according to a former vice president at Bank of China, one of the nation’s four biggest state-owned commercial banks. The executive, Yongli Wang, said over WeChat that wide use of digital currencies would encourage monetary reform, bolster liquidity and place limits on excessive cash issuance. Wang, now a director of the Haixia Blockchain Research Institute, also said limiting digital currency as a replacement for cash could impact its market competitiveness. China is in the process of developing and testing a digital yuan through its Digital Currency Electronic Payment (DC/EP) system.

SegWit Sleuths
NetWalker ransomware, which last week triggered cybersecurity flash warnings from the Federal Bureau of Investigation (FBI), has extorted $25 million in bitcoin from its corporate and governmental victims during the months of the pandemic, according to a report by McAfee and CipherTrace. NetWalker is a “ransomware-as-a-service” that gains its access through COVID-19 phishing emails, steals internal documents and demands a payout. Approximately 2,795 bitcoins have been transferred to NetWalker wallet addresses beginning March 1, with evidence showing hackers are swapping this extorted payout into cold storage and SegWit addresses, possibly to reduce fees. 

Quick bites

• Bison Trails hires ex-Goldman Sachs VP as legal head.
• Electric Capital raises $110 million for second fund, eyeing DeFi and layer 1s. (The Block)
• Coin Center CEO Jerry Brito  builds anonymous forum for free speech. (Decrypt)
• Bitfinex offers “up to” $400 million reward for bitcoins stolen during 2016 exchange hack. (The Block)

At stake

Related: INX Scales Down US IPO Target to $127M – Still Set to Be Crypto’s Largest

Cryptocurrency and security token exchange INX has scaled down its initial public offering ask – but is still pursuing the largest offering (within the digital assets industry) to date. 

According to an updated F-1 Form (the Securities and Exchange Commission prospectus form for foreign issuers), the Gibraltar-based firm is looking to raise a maximum of $117 million. If successful, that would be $27 million more than mining giant Canaan made when it went public in 2019, CoinDesk’s Paddy Baker reports. 

While the bid is reduced, and the date pushed back (originally slated for Q2 2020), the expected raise is still something of a novelty.

Initial public offerings are rare in the industry, but becoming more common. Silvergate Bank and Argo Mining, among others, led the way with others soon to follow. Both Coinbase and Diginex are expected to appear on Nasdaq – through unconventional channels. 

INX’s plan is also unconventional, with the raise being led through a token sale. The firm will offer 130 million INX tokens at $0.90 each, with investors able to purchase INX tokens with USDC, bitcoin and ether – under certain restrictions – as well as the U.S. dollar. The token is used to pay transaction fees on the platform.

In years prior, token sales were largely unregistered initial coin offerings, which led to a slew of problems still being meted out. Chief among them, the debate over whether token holders have rights over a company or protocol. 

While INX holders won’t be equity holders, they will receive a share of the firm’s profits. Further, in the advent of a liquidation, token holders will be paid ahead of shareholders.

While going public isn’t an option for the majority of crypto firms, this arrangement shows a new path forward for crypto’s integration with the larger financial system. The ability to use cryptographically secure tokens to confer benefits to stakeholders, while also providing benefit to the platform. 

INX’s executive managing director, Alan Silbert, is the brother of Barry Silbert, the founder and CEO of Digital Currency Group, CoinDesk’s parent company.

As the filing shows, INX plans to use the IPO funds to build its digital platform. 

Market intel

Institutional Interest
Open interest, or open positions, in bitcoin futures listed on major exchanges reached a new lifetime high of $5.6 billion on Saturday, surpassing the previous record of $5.36 billion in February, according to data source Skew. “The rise in open interest represents an accumulation of long positions by institutional traders,” said Matthew Dibb, COO of Stack. Open interest in futures on the Chicago Mercantile Exchange (CME) jumped to a record high of $828 million on Monday, surging 127% over the past 2.5 weeks alongside bitcoin’s quick rise from $9,100 to $11,100.

Ethereum 2.0: How It Work and Why It Matters
CoinDesk Research’s 22-page report covers the long-awaited Ethereum 2.0, from its technology and development road map to potential market impact as the foundational upgrade to the world’s largest smart contract platform. Ethereum developers present commentary about the benefits and risks this new technology may bring. Download the free report.

Opinion

Taking the Economy Back From Economists
Zephyr Teachout, a law professor at Fordham University in New York, is best known for her attempts to enter New York politics as a progressive advocate. She recently published, “BREAK ‘EM UP: Recovering Our Freedom from Big Ag, Big Tech, and Big Money,” about the monopolization of American industry and the antitrust actions being pursued. What follows is an abridged conversation with Teachout and CoinDesk privacy reporter Ben Powers. Read the full Q&A here.

How do monopolistic companies create parallel government structures? 

There are clearly forms of private government that are smuggled inside our current public government and growing in power. If you ask somebody who is an Amazon seller what judicial system they care about, they care a lot about Amazon’s system and their own mechanisms for delisting sellers. These companies have their own intellectual property regime, their own punishment regime, and that is as important if not more so than the public one if you are caught within the web of one of these private, growing governments. 

You bring up decentralization a lot in the book. How might cryptocurrencies play a role in that?  

I think of these systems as incredibly important, but it all depends on what the governance mechanism is. When Amazon recently applied for a patent to use blockchain technology, which would basically require every seller to keep a ledger of where all their supplies come from, then basically the technology itself isn’t doing a lot of decentralization. The technology is in service of a centralized power. There is no such thing as no-governance regimes. When I talk to crypto advocates, they’ll often frame it as if it is a world with no governance. But there is never an absence of governance. In the end, someone controls supply. Technology itself can’t do quite as much work as I think some of the advocates think. But again, let’s have that discussion, because I think there’s just unbelievably powerful ways in which it can be used for the good. 

You talk about developing a “f–k-off” economy. What do you mean by that?

I’m trying to take the economy back from the economists. They’ve been acting like priests for 40 years and telling us that we, as mere residents of this society, have no business messing with economic terms like monopoly or antitrust, and we should just trust their assessments of efficiency. When you take the economy back for people and not economists, then things like wages matter again.

Podcast corner

Open Source
Just because you’re not bullish doesn’t mean you can’t respect Bitcoin. CoinDesk’s Leigh Cuen sits down with  Nadia Eghbal, author of the upcoming book “Working in Public,” about open-source software projects. 

Who won #CryptoTwitter? Related Stories

• Blockchain Bites: Hedge Fund Down, Banana Bets and the Twitter Hack Fallout
• First Mover: July Was a Runaway Month for Crypto Returns

Hackers are reportedly selling the personal data of over a million Russians who voted electronically, using blockchain technology, during the recent constitutional amendment process.

Over 1.1 million data points were stolen and put on sale for $1.50 each on the online forums, the Russian newspaper Kommersant wrote. The data, consisting exclusively of passport numbers, has little value on its own, the anonymous sellers admitted to Kommersant. But such data can be used for phishing attacks when combined with information from other leaked databases.

Moscow’s Department of Information Technologies, which is responsible for the design of the voting system, denied the report in an email to CoinDesk.

Related: NetWalker Ransomware Gang Is Storing $7M in Bitcoin in SegWit Cold Storage

“The department is regularly monitoring the internet for publications of such data, including the darknet. The database mentioned in the publication has nothing to do with the list of voters who registered to vote online,” the department’s press office wrote, adding that the information on the Moscow city hall’s servers was properly protected and “there had been no leaks since the beginning of 2020.”

See also: Putin Signs Russian Crypto Bill Into Law

The online voting was a part of nationwide voting dedicated to the amendments to the Russian constitution, which, among other things, eliminated the two-term restriction for presidents, effectively allowing Vladimir Putin to stay in power longer.

The online voting system, based on Bitfury’s open-source Exonum blockchain and built with the help of Kaspersky Lab, was previously reported to have poor data protection. Journalists were able to decrypt people’s votes as well as pull passport numbers out of a weakly protected file posted online by the authorities, a Russian media outlet Meduza wrote.

Related: Putin Signs Russian Crypto Bill Into Law

The voting took part during the last week of June and ended July 1, both online and at the physical polling stations. Municipal authorities’ employees were forced to vote electronically, BBC reported.

In a blog post earlier Tuesday, department representative Artyom Kostyrko said the department compared the screenshot the seller provided with the voter database, and the information didn’t check out. However, according to the founder of the cybersecurity firm DeviceLock, Ashot Oganesyan, the database was genuine and has been on sale for a while now.

See also: Russia’s FSB Is Making Life Harder for Blockchain Companies

Kaspersky declined to comment on the security issue when asked by CoinDesk.

In Russia, every citizen older than 14 has a passport, which serves as a universal ID for any kind of interaction with the government. Each passport has a unique number, and those numbers have reportedly been retrieved from the online voting system and put on sale.

Russia is planning to expand the practice of online voting, despite the issues mentioned above. The previous blockchain voting experiment by Moscow, which took place in the fall 2019, used the Ethereum blockchain and also turned out to have weak security.

Related Stories

• Paxful Chips Away at LocalBitcoins’ Russian P2P Market Dominance
• Russia’s FSB Is Making Life Harder for Blockchain Companies

Ethereum 2.0’s “final” and “official” public testnet, Medalla, is now live, according to the Ethereum Foundation.

• Medalla is the final testnet before the launch of the Eth 2.0 network, which is tentatively expected by year’s end.
• The correct number of peers joined the tesnet to consider it workable, according to a tweet from the Ethereum Foundation’s Hudson Jameson.
• As reported by CoinDesk, Medalla was one of many Eth 2.0 testnets over 2019 and 2020. Unlike the other testnets, however, Medalla was public – meaning network validators were not centrally coordinated by developer teams.
• Over 20,000 validators have joined the network with some 650,000 ether (ETH) staked, according to the Beaconcha.in block explorer. (Each testnet uses its own tokens not equivalent to real ETH.)
• Medalla was joined by five clients including Prysmatic Labs’ Prysm, ChainSafe’s Lodestar, PegaSys’ Teku, Status’ Nimbus and Sigma Prime’s Lighthouse.
• Eth 2.0 encapsulates years of research to switch the current Proof-of-Work (PoW) Ethereum network to a Proof-of-Stake (PoS) consensus algorithm. The expected launch later this year will be phase 0 of a multiyear overhaul.

Read more: Ethereum 2.0 Developers Announce ‘Final’ Testnet Before Network Launch

Related Stories

• Decentralized Exchange dYdX Debuts Ether Perpetual Swaps
• There’s Now an Accelerator Exclusively for DeFi Startups
• DeFi-Focused Derivatives Platform Hedget Raises $500K in Seed Funding
• Matic Pledges $5M in Tokens to Entice DeFi Projects Into Building on Its Network

Genesis Capital’s lending portfolio rapidly recovered in the second quarter after a sharp decline that resulted from the mid-March bitcoin (BTC) sell-off. 

The cryptocurrency lender’s book of active trading loans increased 118% from the end of the first quarter to $1.4 billion at mid-year, the firm disclosed Tuesday. The blistering pace of growth was likely an anomaly, the company said. 

“The 100% growth rate in our loans is a function of the fact that we cut our data set at about March 31,” Genesis CEO Michael Moro said in an interview. “To think that our loans outstanding would grow by over 100% in just three months going forward is probably unrealistic.” 

Related: Circle Gets $25M From DCG to Drive USDC Mainstream

The business took a hit when bitcoin, along with the mainstream financial markets, tumbled on coronavirus fears late in the first quarter. The fast comeback signals that crypto borrowing remains a popular tool for arbitrage among professional traders. They typically borrow fiat and put up crypto as collateral, or vice versa, or pledge one crypto asset as security for another.

Genesis Capital is the lending arm of Genesis Trading, itself a subsidiary of Digital Currency Group (DCG), which is also the parent company of CoinDesk.

Unsecured loans

Market chatter recently has focused on lending practices of the leading firms in the niche. As CoinDesk reported last week, Genesis’ rival Celsius Network has been quietly making at least some unsecured loans (despite its CEO’s public boasts that it demands collateral); investing a portion of depositors’ funds in derivative contracts, rather than in loans; and rehypothecating (i.e. lending out) collateral pledged by borrowers. All else equal, such practices increase risk compared to an always-collateralized, lending-only, collateral-retained model.

Genesis claims the interest it collects from borrowers entirely funds the interest it pays its lenders. Moro would not say whether it rehypothecates collateral. Genesis’ vice president of lending, Matt Ballensweig, said the firm makes some uncollateralized loans to “strategic partners,” but would not say how big a percentage of its loan volume was unsecured. 

Related: What Crypto Lender Celsius Isn’t Telling Its Depositors

See also: Banks Won’t Rush to Hold Crypto – But OCC’s Regulatory Approval Makes It Harder to Ignore

The clients who are lending their assets out through Genesis are high-net-worth individuals, hedge funds, and other asset managers, and they generate returns of 6% to 12% on those loans. 

Firms that borrow from Genesis are hedge funds, quantitative trading firms, crypto exchanges, other crypto lenders, and crypto operating companies such as bitcoin ATM firms. 

Re-mix

The lender is still seeing a flight away from U.S. dollar loans to bitcoin loans. Dollars loans made up 32% of the loan book, down from nearly 36.6% the previous quarter, and bitcoin’s share increased to 51.2%. The second-largest cryptocurrency represented in the loan book is ether (ETH), making up 7.4%.

Most of Genesis’ lending is directly affected by the spread between bitcoin’s spot and futures prices, Moro said. For example, a trader might borrow dollars to buy a futures contract as its premium over bitcoin’s spot price continues to rise.

But a period of low volatility in the spot price dampened interest in dollar loans that would normally be used for this kind of arbitrage, Moro said. Now, instead of borrowing greenbacks, traders are borrowing bitcoin to sell it short while going long futures in a crypto version of the classic Wall Street steepening curve strategy, said Ballensweig. 

Ballensweig said he expects this dynamic to change in the third quarter as traders look to unwind futures trades. “Back in Q2 the traders were actually hoping for that premium to expand,” he said. “Now they’re saying, ‘okay, let’s take some of those profits and actually short the curve.’” 

Trading holds steady

Despite decreased volatility in the spot market, Genesis’ trading volume increased by $1.25 billion to $5.25 billion in the second quarter. The majority of the trading volume was on over-the-counter trading desks with the rest being on exchanges. 

With its new derivatives trading desk introduced in May, the firm traded $400 million across forwards and options with nearly 50 active counterparties across 10 different assets. Around 67% of the trading volume was executed bilaterally while the remaining 33% was executed on exchanges. Roughly 80% of the volume has been concentrated in BTC to U.S. dollar trades, with ETH to USD trades and other major tokens making up the rest. 

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

The firm is also hoping to introduce capital introduction for family offices that are looking for crypto hedge funds that have the strategies, fee structure and asset exposure to fit their investing needs in the fourth quarter 2020 as a part of its bid to become a prime broker. 

Related Stories

• Silvergate’s Bitcoin-Backed Lending Product Grew 80% in the Last Quarter
• Compound Tops $1B in Crypto Loans as DeFi Farmers Keep Digging for Yield

The Federal Reserve appears ready to pursue yet another untested strategy that could ultimately boost inflation – and possibly prices for bitcoin.

The Fed is “preparing to effectively abandon its strategy of pre-emptively lifting interest rates to head off higher inflation,” according to a new report in the Wall Street Journal. 

The shift signals an explicit willingness by the central bank to tolerate higher inflation, at a time when the spreading coronavirus continues to ravage the economy. The U.S. unemployment rate stands at 11%, a level not witnessed since the early 1940s until this year. 

Related: Bitcoin Futures Interest Soars as Bond Yields Fall to Record Lows: Industry Exec

The Fed’s extra loosening of monetary policy could help support prices for bitcoin, which many cryptocurrency investors speculate could serve as an effective hedge against inflation, similar to gold. Bitcoin prices have already soared 58% this year, beating silver’s 36% and gold’s 30%, not to mention the 2% gain in the Standard & Poor’s 500 Index of large stocks.  

Bitcoin rose 1.5% on Monday to $11,338. 

“As more investors look to ‘digital gold’ as an inflation hedge in an increasingly digitized world amidst unprecedented government money printing,” the cryptocurrency research firm Messari wrote Monday, “we know that it won’t take much of an institutional allocation until $50,000 bitcoin is back on the table.”

The Fed already has taken monetary policy to a new level of extraordinary this year, pumping nearly $3 trillion of freshly created money into financial markets earlier and pushing its total assets to about $7 trillion. A growing number of investors in both digital-asset and traditional markets say the flood of dollars could whittle down the U.S. currency’s purchasing power.

Related: Blockchain Bites: Hedge Fund Down, Banana Bets and the Twitter Hack Fallout

The dollar index, a gauge of the the currency’s strength in foreign exchange markets, fell 4% in July, the biggest monthly drop since 2010. And the Wall Street brokerage firm Jefferies now predicts that the dollar could fall as much as 15%, according to CNBC. 

Bank of America analysts wrote Monday in a report that it’s becoming a popular trade to bet against the dollar, since investors are “worried about the long-term impact of the rapid accumulation of U.S. debt for the U.S. dollar’s reserve-currency status.” 

“As gold, silver, equities, and long bonds reach record high levels, and the U.S. dollar slumps, the king of cryptocurrencies may be back in the spotlight for the foreseeable future,” Jeff Dorman, chief investment officer of the cryptocurrency-focused firm Arca, wrote Monday in a weekly blog.  

Under the Fed’s policy shift, according to the Wall Street Journal, the central bank would allow inflation to drift above a 2% target before raising rates. The idea is that above-target inflation would offset periods where consumer price increases were previously below the mark, as has been the case for most of the past two decades. 

The goal is not to increase inflation per se, but to provide assurances to investors that interest rates would remain low for a long time, according to the paper. Such accommodation could help to assure a faster economic recovery. 

Yet, higher inflation could further distort already uncanny signals emanating from bond markets, further undermining the dollar’s attractiveness. Nominal yields on 10-year U.S. Treasury bonds are currently around 0.6%, close to historic lows. Once inflation is factored in, the “real yields” equate to negative 1%. 

Assuming nominal yields don’t rise much anytime soon, an inflation rate above 2% would cause bond investors to fall even further behind.   

“Negative real rates imply a loss in purchasing power from holding U.S. Treasuries, the ideal conditions for non-income producing assets such as gold and silver but also crypto assets like bitcoin,” the analysis firm Delphi Digital wrote on July 31.  

There’s some risk that a fresh panic in markets might prompt investors to rush back into dollars, which could mean a redux of the March crash in bitcoin prices. 

But according to an Aug. 2 Bloomberg News story, the next “risk-off scenario” might not see investors rushing into dollars, due to the “flood of liquidity unleashed by the Fed.” 

“Any haven rally is likely to be shallower than in previous years,” according to the report, “while the possible extent of depreciation remains the same.” 

“Everything hinges on the dollar right now,” Mati Greenspan, founder of the cryptocurrency-focused research firm Quantum Economics, wrote Monday in an email to subscribers. 

Tweet of the day Bitcoin watch

BTC: Price: $11,186 (BPI) | 24-Hr High: $11,480 | 24-Hr Low: $11,164

Trend: Bitcoin is again struggling to find a foothold above $11,400 amid signs of buyer exhaustion on the three-day chart. 

The number one cryptocurrency by market value is currently trading near $11,290, having hit a high of $11,424 during the Asian trading hours. Tuesday is the second straight day of bull failure above $11,400. Prices hit a high of $11,480 on Monday, but printed a UTC close below $11,240. 

Essentially, bitcoin’s recovery rally from Sunday’s “flash crash” low of $10,659 has stalled with the area above $11,400 acting as stiff resistance. 

The bulls need quick progress now, or the focus would shift to the uptrend exhaustion signaled by a major doji candle seen on the three-day chart. 

A doji occurs when prices see two-way business during a specific period. While it is usually considered a sign of indecision, in this case, it has appeared following a notable rally to 11-month highs above $12,100. As such, it represents buyer fatigue. 

The three-day chart’s relative strength index (RSI) is also reporting overbought conditions with an above-70 reading. Thus, a pullback to $11,000 can’t be ruled out. A move below that psychological support would expose the former hurdle-turned-support at $10,500 (February high). 

Alternatively, a sustained move above $11,400 on the hourly chart would strengthen the case for a re-test of recent highs above $12,000.

Related Stories

• First Mover: July Was a Runaway Month for Crypto Returns
• Bitcoin Investors Unshaken by Sunday’s Flash Crash, Data Suggests

Cryptocurrency and security token exchange INX has shifted its sights for a planned initial public offering (IPO) in the U.S.

The Gibraltar-based trading group filed an F-1 Form – a securities registration for non-U.S. issuers – with the Securities and Exchange Commission (SEC) on Monday. Originally slated for Q2 2020, the sale is now expected to take place next year.

Per the filing, INX will offer 130 million INX tokens at $0.90 each, putting the maximum raise at $117 million, which could make it the largest IPO in the digital asset industry to date. That’s down from the previous prospectus, filed in March, where the company hoped to raise $130 million by selling tokens at $1 apiece.

Related: SEC Seeking ‘Smart Contract’ Tracing Tool That Can Spot Security Vulnerabilities

The maximum target, if achieved, would still be $27 million more than mining chip manufacturer Canaan raised in November 2019.

Investors will be able to purchase INX tokens with cryptocurrencies as well as the U.S. dollar. INX will accept commits made in the stablecoin USDC, bitcoin and ether – but only if the sale exceeds the minimum $7.5 million raise amount.

Although it won’t be the first IPO to accept cryptocurrencies, it will be the largest offering yet to do so.

INX is a cryptocurrency and security token exchange hopeful that seeks to operate in the U.S. It’s been trying to register with the SEC for more than two years so it can offer a regulatory-compliant sale and first registered with the chief securities watchdog last summer.

Related: Blockchain Bites: XRP Sales, INX IPO and Bitcoin Mining Woes

The firm’s executive managing director, Alan Silbert, is the brother of Barry Silbert, the founder and CEO of Digital Currency Group, CoinDesk’s parent company.

A series of other crypto companies are making plans to become publicly tradeable. Last week, a Hong Kong-based crypto derivatives exchange said it would begin trading on the Nasdaq via a reverse listing in Q3. Coinbase is said to be considering a direct listing in the U.S. next year.

See also: $14M Bitcoin Fund Gets Listed on Toronto Stock Exchange

With INX being an ERC-20 token, investors will need an Ethereum wallet address to participate in the sale. The exchange said in the latest filing it will not send tokens to Ethereum wallets based on the platforms of possible rival exchanges, including Coinbase. Bitrexx, Jaxx, Poloniex, Kraken, Bitfinex, Cex.io, Bitstamp and others are also excluded.

INX tokens can be used against transaction fees and confer holders the right to receive 40% of cumulative net cash flow on an annual basis once the platform makes more than it spends. Tokens don’t confer ownership of the company themselves.

However, token holders may be unlikely to earn much in the first year. In the filing, INX says it hasn’t actually made any revenue since its 2017 launch and made a $3.7 million loss in 2019.

Indeed, the IPO funds will actually go towards launching the digital trading platform that INX says will mean it can finally earn revenue. It estimates the platform could launch within 12 months of the minimum raise being reached.

See also: First Mover: Crypto’s $35T Moment Could Come From Analog-World Stock Listings

Passing the minimum raise will allow INX to further develop the platform, develop a new Cash Fund that can be used to cover both company and customer losses, and apply for a U.S. broker-dealer license. The company can already operate as a money transmitter in seven U.S. states, including California.

The prospectus highlights that INX has received support from high-profile industry figures. Riccardo Spagni, Monero’s former lead maintainer and public face, owns 7.5% of the company (just under a million dollars’ worth) and Litecoin creator Charlie Lee owns $100,000 worth of ordinary INX shares.

INX said in its previous prospectus it would apply for a New York BitLicense, although this isn’t explicitly mentioned in Monday’s filing. The company still plans to move its headquarters from Gibraltar to New York at a future, undisclosed date.

UPDATE (Aug. 4, 2020, 20:56 UTC): This article’s headline was amended.

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Cryptocurrency and security token exchange INX has shifted its sights for a planned initial public offering (IPO) in the U.S.

The Gibraltar-based trading group filed an F-1 Form – a securities registration for non-U.S. issuers – with the Securities and Exchange Commission (SEC) on Monday. Originally slated for Q2 2020, the sale is now expected to take place next year.

Per the filing, INX will offer 130 million INX tokens at $0.90 each, putting the maximum raise at $117 million, which could make it the largest IPO in the digital asset industry to date. That’s down from the previous prospectus, filed in March, where the company hoped to raise $130 million by selling tokens at $1 apiece.

Related: SEC Wants to Start Scrutinizing Binance Chain Transactions

The maximum target, if achieved, would still be $27 million more than mining chip manufacturer Canaan raised in November 2019.

Investors will be able to purchase INX tokens with cryptocurrencies as well as the U.S. dollar. INX will accept commits made in the stablecoin USDC, bitcoin and ether – but only if the sale exceeds the minimum $7.5 million raise amount.

Although it won’t be the first IPO to accept cryptocurrencies, it will be the largest offering yet to do so.

INX is a cryptocurrency and security token exchange hopeful that seeks to operate in the U.S. It’s been trying to register with the SEC for more than two years so it can offer a regulatory-compliant sale and first registered with the chief securities watchdog last summer.

Related: 605 Days Later: How ArCoins Got the SEC Go-Ahead as an Ethereum-Traded Treasurys Fund

The firm’s executive managing director, Alan Silbert, is the brother of Barry Silbert, the founder and CEO of Digital Currency Group, CoinDesk’s parent company.

A series of other crypto companies are making plans to become publicly tradeable. Last week, a Hong Kong-based crypto derivatives exchange said it would begin trading on the Nasdaq via a reverse listing in Q3. Coinbase is said to be considering a direct listing in the U.S. next year.

See also: $14M Bitcoin Fund Gets Listed on Toronto Stock Exchange

With INX being an ERC-20 token, investors will need an Ethereum wallet address to participate in the sale. The exchange said in the latest filing it will not send tokens to Ethereum wallets based on the platforms of possible rival exchanges, including Coinbase. Bitrexx, Jaxx, Poloniex, Kraken, Bitfinex, Cex.io, Bitstamp and others are also excluded.

INX tokens can be used against transaction fees and confer holders the right to receive 40% of cumulative net cash flow on an annual basis once the platform makes more than it spends. Tokens don’t confer ownership of the company themselves.

However, token holders may be unlikely to earn much in the first year. In the filing, INX says it hasn’t actually made any revenue since its 2017 launch and made a $3.7 million loss in 2019.

Indeed, the IPO funds will actually go towards launching the digital trading platform that INX says will mean it can finally earn revenue. It estimates the platform could launch within 12 months of the minimum raise being reached.

See also: First Mover: Crypto’s $35T Moment Could Come From Analog-World Stock Listings

Passing the minimum raise will allow INX to further develop the platform, develop a new Cash Fund that can be used to cover both company and customer losses, and apply for a U.S. broker-dealer license. The company can already operate as a money transmitter in seven U.S. states, including California.

The prospectus highlights that INX has received support from high-profile industry figures. Ricardo Spagni, Monero’s former lead maintainer and public face, owns 7.5% of the company (just under a million dollars’ worth) and Litecoin creator Charlie Lee owns $100,000 worth of ordinary INX shares.

INX said in its previous prospectus it would apply for a New York BitLicense, although this isn’t explicitly mentioned in Monday’s filing. The company still plans to move its headquarters from Gibraltar to New York at a future, undisclosed date.

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Bitcoin futures are drawing record interest as investment opportunities in traditional markets dry up, said the co-founder of an institutional fund provider.

• Open interest, or open positions, in futures listed on major exchanges reached a new lifetime high of $5.6 billion on Saturday, surpassing the previous record of $5.36 billion in February, according to data source Skew. 
• As of Monday, aggregate open interest was $5 billion, up 66% from the July low of $3 billion.
• Open interest in futures on the Chicago Mercantile Exchange (CME), synonymous with institutional investors, jumped to a record high of $828 million on Monday.
• CME’s open interest has surged 127% over the past 2.5 weeks alongside bitcoin’s quick rise from $9,100 to $11,100.
• “The rise in open interest represents an accumulation of long positions by institutional traders,” said Matthew Dibb, the co-founder and COO of Stack, an institutional provider of cryptocurrency trackers and index funds.

• Dibb said the rise in open interest in crypto derivatives suggests investors are looking for alpha – the best returns – in alternative markets as equities look overbought and bond yields move into negative territory.
• The U.S. 10-year Treasury note is offering a yield of 0.54% at press time with the real or inflation-adjusted bill at a record low of -1%.
• Similar bonds in Germany, Japan and Switzerland are offering negative yields, according to TradingView data.
• As a potential macro hedge, Dibb expects bitcoin to break into multi-year highs as the global economy worsens and investors become steadily confident in moving value from traditional markets into the digital asset space.
• Bitcoin’s price is largely unchanged at $11,290; technical bias remains bullish with prices holding well above the support line at $10,500, the February high.

See also: Bitcoin Futures Volume Surges 186% as Price Hits $11K

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• Market Wrap: Bitcoin Rebounds to $11,400 After Flash Crash as Ether Closes In on $400

Bison Trails has hired BlockTower Capital’s former legal and compliance director to be its first general counsel.

• Elizabeth Ralston will be in charge of all legal, risk, compliance and policy matters at the blockchain infrastructure startup.
• Prior to her time at BlockTower Capital, Ralston was a vice president at investment bank Goldman Sachs.
• While at BlockTower, Ralston negotiated agreements with custodians, exchanges, over-the-counter desks, software providers and other service providers. She also handled venture investments in early-stage companies. 
• Ralston will tackle some of the same issues at Bison Trails, with a focus on tax implications for crypto investors participating in proof-of-stake networks.
• “Given that thoughtful regulation is integral to mass adoption, I look forward to setting a regulatory precedent that paves the way for this budding ecosystem,” Ralston said in a press statement. “I am determined to fiercely advocate for this transformative industry and effectively engage with regulators on behalf of Bison Trails.”

Read more: Why Bison Trails Is Staying the Course on Libra

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A former vice president of a top Chinese bank said digital currency should replace fiat in the nation’s financial systems.

• Yongli Wang, previously of the Bank of China, said in a WeChat post that wide use of digital currencies would encourage monetary reform, as reported by media outlet The Global Times on Sunday.
• Wang, now a director of the Haixia Blockchain Research Institute, also said China would use digital currency as a substitute for cash in circulation initially, but that could impact its market competitiveness if confined solely to that role.
• Digital currencies, he said, could help to bolster liquidity in an economy, while placing limits on excessive issuance of physical cash.
• Wang added that preventing the printing of too much cash would help maintain monetary and financial stability.
• One way forward, he suggested, would be to provide exclusive “basic accounts” on the central bank’s digital currency platform for all social entities, according to the report.
• Bank of China is one of the nation’s four biggest state-owned commercial banks.
• The former VP’s comments come at a time when China’s biggest banks and other commercial entities have begun trialing the pilot of the central bank’s Digital Currency Electronic Payment (DC/EP) system.
• The digital currency, often dubbed the digital yuan, is designed to facilitate the replacement of all the nation’s cash in circulation in the coming decade.

See also: China to Test Digital Yuan on Tencent-Backed Food Delivery Platform

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• Ripple Snaps XRP Sales Slump With $33M of the Crypto Sold in Q2

Decentralized derivatives protocol Hedget has raised $500,000 in seed funding.

• According to a press release issued Monday, the round was led by FBG Capital and NGC Ventures, both Asia-based venture firms.
• Hedget is a new Ethereum layer two solution for decentralized options trading, allowing users to buy and sell derivatives using collateral to hedge risk when holding crypto.
• Users can also hedge on positions of debt taken up on lending protocols in the DeFi space.
• The platform believes that options are a “necessary building block” for the maturation of DeFi, according to a blog post. 
• Talking of why his firm co-led the round, NGC’s managing partner Roger Lim said Hedget would help solve the “pain points” of costly and slow settlements for decentralized options trading.
• The derivatives startup was incubated by Chromia, a scalable blockchain platform designed to support decentralized applications, or dapps.
• Chromia also invested in the seed round, its co-founder, Or Perelman, told CoinDesk.
• With fees on Ethereum now proving “prohibitively” expensive, Perelman said Hedget is further utilizing Chromia as a layer-two solution over Ethereum for complex trading transactions, with only settlements being recorded on Ethereum.
• He added that Hedget had been offered more than $500,000 in the seed investment, but the team had decided to go for “an average number.”

See also: Five Years In, DeFi Now Defines Ethereum

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A Paris judge has officially ordered the trial of alleged BTC-e operator Alexander Vinnik to begin.

• In a report from the Moscow Times on Monday citing AFP, Vinnik’s lawyer and others said he will face charges of defrauding more than 100 people in six French cities from 2016 to 2018.
• Vinnik will also face charges of extortion, aggravated money laundering, conspiracy and harming automatic data-processing systems as the head of the now-shuttered crypto exchange BTC-e, an AFP source said.
• Billions of dollars-worth of bitcoin passed through BTC-e , some of which was allegedly used to launder money for criminals.
• Law enforcement agencies moved to halt operations of the exchange in 2017.
• Later the same year, Vinnik was detained by authorities in Greece and became the focus of a legal tug-of-war between the governments of Russia, the U.S. and France, all of which were seeking his extradition.
• On the day Vinnik arrived in France in late January he was immediately charged and prosecutors filed to launch the trial late last month.
• The suspect, who maintains his innocence, had hoped to be extradited to Russia where he would face less severe fraud charges for the amount of €9,500 ($11,200).
• Vinnik is also facing 21 charges from U.S. authorities ranging from money laundering and identity theft to facilitating drug trafficking.

See also: Latvian Police Seize Crypto Worth $126K in Bust of Suspected Cybercrime Ring

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• Ripple Snaps XRP Sales Slump With $33M of the Crypto Sold in Q2

The rain has come. The machines are humming. This should be the best time of the year for China’s bitcoin miners. The monsoon season, generally from June to October, brings excessive rain and thus cheap hydro electricity.

But this year is different, proving to be harder than ever for China’s bitcoin miners and mining farm operators who are estimated to dominate 65% of the global multi-billion dollar bitcoin mining industry. 

Since last summer, many mining farm operators rushed to build new facilities in China’s southwestern region in anticipation of a dramatic price rise with bitcoin’s halving. 

Related: Bitcoin Miners Saw 7% Revenue Increase in July

But mining difficulty has now almost doubled compared to the monsoon season last year, while block rewards have halved, meaning it is more difficult to mine, with less rewards. Bitcoin miners that have entered the market since last year have to wait much longer to see a return on their investment in mining hardware and facilities. 

Thomas Heller, global business director of mining pool F2Pool, summarized the situation in a recent blog post: “We’re halfway through 2020 and the mining industry has already faced several enormous challenges.”

“Miners had to battle off the macroeconomic black swan of March, pass through the smoke of the halving and a pandemic, and now they’re gearing up for the rest of the year’s competitive battlefield,” he wrote.

A year with a bitcoin halving and global epidemic rolled into one, it’s truly one of a kind.

Related: Marine Corps Bans Crypto Mining Apps From Government-Issued Mobile Devices

Read more: Bitcoin Mining Difficulty Sets New Record High 2 Months After Halving

Harder than ever

Many miners expected bitcoin’s price to rise sharply after the halving, said Kevin Pan, CEO and co-founder of the China-based PoolIn, one of the two biggest bitcoin mining pools in the world (along with F2Pool).

“In reality, not only there was not much price momentum driven by halving, there came the mega sell-off on March 12, which caused a large scale of forced liquidation and loss,” he said.

For two months after halving, bitcoin’s price largely remained static around $9,000. Although it jumped above $10,000 last week and is now changing hands over $11,000, it is still at a similar price level seen at this time last year. 

In contrast, the network’s mining difficulty rose to an all-time-level within two months after halving. It’s now almost twice as difficult to mine bitcoin compared to last July, while block rewards have halved.

Without a significant price breakout, bitcoin miner’s daily revenue has dropped by 70% compared to last year, said Pan, although the recent bitcoin price jump has helped improving the situation.

Indeed, Bitinfochart’s data shows bitcoin’s daily mining revenue was around $0.33 per one terahashes second (TH/s) of computing power in July 2019. It has since then declined to now around $0.1 per TH/s.

Overcapacity

Meanwhile, a surge in interest and investment in bitcoin mining since last year have led to a surplus of newly constructed mining facilities in China. 

In April, the oversupply issue had already shifted the hosting business from a seller’s market to a buyer’s market, with mining farms generally offering a 20% electricity discount compared to last year.

Pan estimates that during this rainy season, 20% to 30% of mining facility capacity in Sichuan and Yunnan provinces still remains unused. 

Read more: China’s Rainy Season Is Coming. This Time Bitcoin Miners Aren’t Investing

To be clear, bitcoin miners and mining farms can still make a profit. But they have to endure a much longer period than expected to break even on their investments.

A payback period of six months to a year used to be common for bitcoin miners in China, but if bitcoin maintains its current prices around $11,000, that could be extended to as long as two years. 

“In the eyes of many old Chinese miners, the electricity price right now is not only lower than the similar situation of the halving and hydro season in 2016, but also even lower than the electricity prices during the 2015 bear market,” said Heller of F2Pool. 

Lower electricity may be appealing to miners, but it also means mining farm operators are facing an “unprecedented investment challenge” as the business shifted to a buyer’s market, Heller said.  

Long-term bullish

Despite this year’s tough market environment, some are still bullish over the long term and are rolling out products to attract investors. Jiang Zhuo’er, CEO and founder of mining pool BTC.Top who also runs his own mining farms, recently launched joint-mining contracts dubbed B.top.

It essentially sells mining equipment by TH/s and farm electricity at cost to retailers who want to participate in mining. The company will not charge customers hosting and management fees until the mining profits they receive break even on their investment.

HashAge and Heng Jia, two long-running bitcoin mining farm operators with over a dozen facilities in Sichuan, also announced a partnership with Chinese crypto lending startup Babel last Friday.

Flex Yang, CEO and co-founder of Babel, said the firm is allocating up to $50 million in USDT as a loan for those who choose to host their miners at HashAge and Heng Jia’s facilities.

In contrast to previous crypto loans that require borrowers to pledge bitcoin as collateral, this new partnership accepts debtors’ miners hosted at HashAge and Heng Jia as collateral.

This effort is also one of the industry’s first in terms of treating specialized mining equipment, known as ASIC miners, as a tradable asset in crypto-based debt financing.

Luxor, a U.S.-based mining pool, rolled out a bitcoin hashrate price index earlier last month in an effort to provide better transparency into the traditionally opaque market of how much bitcoin mining equipment is changing hands. 

Floods

But rain cuts both ways for the mining industry. Flooding in China is among the worst in decades, and has affected over 50 million residents, with nearly four million people displaced and over 150 dead or missing. 

The good news is it could have been much worse. Pan said the flood has so far mainly affected the middle and lower reaches of the Yangtze river.

Since most mining farms in Sichuan and Yunnan are located along the upper reaches in the mountain area, which are some 1,200 km, or 800 miles, away from the middle reaches, there are fewer instances where facilities are directly flooded due to the rainfall.

But Pan said there have been more regular instances of mining farms’ hydropower plants temporarily cutting off electricity generation because the increasing water reserve levels would otherwise cause pressure on the dam. 

The places that are suffering the most severe damage so far are provinces in Central China including Jiangxi, Hubei, Hunan and Anhui provinces, as illustrated in this multimedia article from the South China Morning Post.

Johnson Xu, chief analyst at Beijing-based research startup TokenInsight, said mining farm operators nowadays are more experienced in choosing the right location for construction, after witnessing events in previous years where facilities were destroyed by floods and mudslides.

“Chinese mining farms have already conducted thorough due diligence to pick the locations where potential flooding risk is minimal,” so the floods haven’t caused a major impact on the mining community, said Xu.

Read more: Bitcoin Miners Halt Operations as Rainstorm Triggers Mudslides in China

Tug of war

Another reason why there are too many bitcoin mining farms is the push by local governments in Sichuan for establishing the so-called “Demonstration Zone for Utilizing Excessive Hydropower Electricity” since late last year.

Mining farms and hydropower plants that choose to be based in these industrial parks can typically enjoy a stable operational environment with a steady and cheap power supply. In return, they give a portion of their profits to local governments as well as China’s State Grid, the state-owned utility monopoly. 

In previous years, many mining farms in Sichuan and Yunnan have been using what’s called “direct-supply” electricity. That means power plants sell electricity directly to mining farm operators without having to share the profits with other parties. 

As local governments have stepped up efforts to rectify the “direct-supply” model adopted by many power plants, this has created a sort of tug of war among local governments, hydropower plants as well as the State Grid, Pan said.

Some bitcoin mining farm operators using “direct-supply” electricity wish to sell their facilities at a low valuation given tough market conditions. This tug-of-war will continue to be a risk factor for potential investors in those mining farms.

“Overall, the latest regulatory policies in China tend to have a negative impact on those unregulated smaller mining farms, but positive towards firms who meet the local regulatory requirements,” Xu added.

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NetWalker ransomware, which last week triggered cybersecurity flash warnings from the Federal Bureau of Investigation (FBI), has extorted $25 million in bitcoin from its victims during the months of the pandemic, according to a report by McAfee and CipherTrace.

• NetWalker is a “ransomware-as-a-service” that gains its access through COVID-19 phishing emails, encrypts infected systems and steals internal documents. Ransomware operators then threaten to publish victims’ documents if they fail to pay up.
• Victims, most of whom are large organizations like companies and governments, appear to been obliging the hackers throughout the pandemic. McAfee and CipherTrace traced 2,795 bitcoin ($25 million) to NetWalker wallet addresses from March 1 through July 27.
• NetWalker’s developers refined their handling of bitcoin payments months before the pandemic began by swapping in SegWit addresses in place of legacy wallets, the report said. 
• “This transition into SegWit could indicate that they are utilizing a new hardware wallet to store their BTC or just an indication of a desire for cheaper transactions,” said Pamela Clegg, director of financial investigations at CipherTrace.
• Clegg told CoinDesk that “large amounts of bitcoin” – up to 640 – appear to be sitting in cold storage. She said that smaller amounts have been deposited at Russian crypto exchange CointoCard.org.
• The cybersecurity report follows last week’s warning from the FBI that NetWalker has been successfully exploiting COVID-19 in recent months. The FBI warns targeted institutions against paying hackers’ bitcoin ransom payments.

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When I answer the phone, Zephyr Teachout quickly explains our call might be shorter than planned. Both she and I are at the whim of her two-year-old toddler, who is sleeping and could wake at any time.

Teachout, a law professor at Fordham University in New York, is best known for her runs for governor of the state and for Congress from New York’s 19th district (both races she lost). She has also written numerous books, including her latest, “BREAK ‘EM UP: Recovering Our Freedom from Big Ag, Big Tech, and Big Money.” Our discussion comes the day after historic Big Tech antitrust hearings in Congress. 

Teachout sees the antitrust discussion as a flashpoint for understanding how democracy and corruption collide. To her, concentrations of private power, as with the Big Tech companies, can’t be fixed with, say, campaign finance reform. These companies are a threat to the public sphere and our ability as individuals to make decisions about the future.

Related: Central Banks Are Privacy Providers of Last Resort

We discussed the antitrust hearings in Congress, what she means by a “f–k-off economy,” and the “parallel governments” that massive companies have created for users of their services. She is not currently knowledgeable about blockchain and cryptocurrency, but sees them as potentially useful tools for achieving economic decentralization.

Our conversation has been edited for length and clarity. 

What was your reaction to the six-hour antitrust hearings yesterday?

Wow. It was a beautiful thing. Congressman David Cicilline [D-R.I.]was totally clear: “This is about democracy versus monopoly. You guys work for us. We’re serious. We’re going to do serious things. And we have some questions.” He had this totally electrifying tone. 

Related: Community Behind Privacy-Focused Smart Contract Forges Ahead After Settlement

And the committee came prepared. They had documents and they focused on the evidence at hand. It couldn’t have been more different than the Mark Zuckerberg Senate hearing after the Cambridge Analytica scandal, where senators were impressed with his earnestness and just made polite requests of him. 

See also: Why We Need a Federal Privacy Law

We have to see the documents to see whether actions these companies took are in fact illegal under current antitrust law. But there is evidence that suggests violations of existing antitrust laws and evidence of things that aren’t violations of laws but are deeply disturbing, for example where platforms use their power to copy or bully other companies.

What’s a striking example of that bullying power?

Amazon. [CEO Jeff] Bezos’ first answer as to whether they used their access to data to launch and boost their own competing products was “No.” And then there’s great reporting that said the answer should be yes. So Bezos said, ‘Well, our policy is no, but I can’t promise you it’s not done.’

Everybody understands that to sell online, you need to go through Amazon. Sellers truly do not have a choice unless they happen to start with a million dollars and want to make one. Now there’s a growing understanding that Amazon has this data insight into the companies that depend on it, and is directly competing with them. Bezos then was forced to make the concession that seemed clear all along: that these companies are competitors rather than partners. 

There is no such thing as no-governance regimes.

He always talks about the great partnerships, and I was reminded of the mob. Partnership can be a very loaded term depending on whom you’re talking to.

Obviously, the best way to stop companies like Amazon from doing that is by mandating that you’re either the platform or you’re competing on the platform. You can’t be both. You need structural responses like that, otherwise, you’re just playing whack-a-mole.

How do monopolistic companies create parallel government structures? 

There are clearly forms of private government that are smuggled inside our current public government and growing in power. If you ask somebody who is an Amazon seller what judicial system they care about, they care a lot about Amazon’s system and their own mechanisms for delisting sellers.

These companies have their own intellectual property regime, their own punishment regime, and that is as important if not more so than the public one if you are caught within the web of one of these private, growing governments. 

See also: Thibault Schrepel – Blockchain Code Can Fill In When Antitrust Law Fails

This is a very old idea that we just forgot in 1980, but understood for most American history. It’s that private power always tends to form into a government of itself. And all governments have judicial systems. Sometimes systems are internal to the company, like Amazon’s appeals processor or Facebook’s content moderation system, about whether you get to be on the platform or not.

They also use the tool of arbitration, where a company is paying judges (or employees) who then don’t have to follow the rules of making evidence public. These mechanisms of arbitration and secret decision making make it really hard for people to tell stories about what’s actually happening inside these private regimes.

Mark Zuckerberg has said Facebook is now more like a government than a traditional company.

The funny thing is these guys basically tell you they want to be a government all the time. It’s like Oprah Winfrey used to say, “If you listen really closely, people tell you who they are and who they’re going to be.” They all say, “We want to govern you,” and because they are in an economic sphere, we don’t hear that as “Alexander the Great is coming for democracy.” But that’s what they’re doing.

You bring up decentralization a lot in the book. How might cryptocurrencies play a role in that?  

I think of these systems as incredibly important, but it all depends on what the governance mechanism is. When Amazon recently applied for a patent to use blockchain technology, which would basically require every seller to keep a ledger of where all their supplies come from, then basically the technology itself isn’t doing a lot of decentralization. The technology is in service of a centralized power. 

There is no such thing as no-governance regimes. When I talk to crypto advocates, they’ll often frame it as if it is a world with no governance. But there is never an absence of governance. In the end, someone controls supply. 

See also: Russian Activists Use Bitcoin, and the Kremlin Doesn’t Like It

Technology itself can’t do quite as much work as I think some of the advocates think. But again, let’s have that discussion, because I think there’s just unbelievably powerful ways in which it can be used for the good. 

My question for everybody is, really, when push comes to shove, who holds the trump cards? Who makes the decision? It’s never nobody. 

A core question about privacy is “Privacy from whom?”

You talk about developing a “f–k-off” economy. What do you mean by that?

I’m trying to take the economy back from the economists. They’ve been acting like priests for 40 years and telling us that we, as mere residents of this society, have no business messing with economic terms like monopoly or antitrust, and we should just trust their assessments of efficiency. When you take the economy back for people and not economists, then things like wages matter again.

See also: Social Media Bans ‘Highlight the Profound Censorship on Web 2.0’

We need an economy where people have the knowledge that if their boss is really awful, they can say “f–k off” walk away. For that to happen, you need there to be actual competitors you could walk away to. Sometimes people say, “Well, there’s plenty of competition. There’s five companies that do this thing.” But there isn’t a real sense that there are meaningful options. And people should have that. I want to reclaim the idea that freedom in the workplace is essential.

How do you see privacy being affected by a handful of companies controlling so much of our economy?

There’s good research that our privacy controls got a lot worse after Facebook merged with Instagram, because they no longer needed to compete to actually protect us better than the other. There’s a nice paper on this, “The Antitrust Case Against Facebook” by Dina Srinivasan, which argues that merger was followed pretty quickly by Facebook no longer keeping its old promises towards its users. I don’t think that antitrust is going to do everything for privacy, but I think antimonopoly more broadly and a concern about power should. 

Privacy means different things to different people. If you see Facebook and Amazon as forms of government, then Facebook or Amazon saying they’re protecting your privacy isn’t a really great comfort. Your government already knows everything about you. 

See also: Money Reimagined: China’s ‘Cold War’ Blockchain Strategy

A core question about privacy is “privacy from whom?” There is a privacy relationship between an individual and centralized power that isn’t just about an individual but the public at large or the formal forms of government.

We should move, as people are with facial recognition, towards an arena where some stuff just can’t be collected at all. We say you cannot just take out your spleen and give it to somebody or sell it. There are certain things we should have an absolute ban on collecting and are not governed by contract law. 

My fear is any privacy regime is trumped by contract law, because when people can individually contract stuff away you have asymmetries of power. Right now the existing tech behemoths have a huge incentive in maintaining a business model whose goal is to maximize the information they have about people and we need to be moving towards an opposing model. 

So what’s the path forward? 

We’re in this exciting moment where there’s a lot of new antitrust energy, but it’s pretty new. I have particular solutions, particular things that I think we should do. But more important is to change our overall politics to make them more fundamentally about antitrust. I bet you haven’t asked your lawmakers about what they think about power. We have to recognize that we’re not going to get to the policy solutions until we get the power dynamics in politics that we want.

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Another crypto hedge fund is winding down, Huobi launched a new unit to invest in DeFi and the Twitter hacker is reportedly a bitcoin millionaire.

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

Fund Down
Neural Capital, a crypto hedge fund, has closed, having lost half its money since launching in 2017. Three people familiar with the matter said the fund’s crypto-assets were liquidated in December and the fund is in the process of refunding leftover money to investors, a process taking longer than expected. At its height, Neural Capital managed over $13 million from over 40 investors, including Greylock partner Joshua Elman and Expa partner Hooman Radfar. It joins several funds founded in 2017 that have announced closures in 2020, including Adaptive Capital, Prime Factor Capital and Tetras Capital.

Related: First Mover: July Was a Runaway Month for Crypto Returns

Banana Fund
U.S. prosecutors are seeking to return $6.5 million in bitcoin to victims of the “Banana.Fund” crowdfunding project, which the government described in court papers as a Ponzi scheme. In a forfeiture suit against the cryptocurrency account storing the funds, prosecutors allege Banana.Fund’s unnamed administrator admitted to investors his project had flopped, promised to return $1.7 million to them and then failed to do so. The operator then pivoted to a laundering and refund scheme that ultimately resulted in the U.S. Secret Service’s (USSS) seizure of 482 bitcoin (BTC) and 1,721,868 tether (USDT), court documents show.

Twitter Hacker
The 17-year-old thought to be behind the recent Twitter hack reportedly owns more than $3 million worth of bitcoin. The alleged hacker, Graham Ivan Clark, stands accused of 17 counts of communications fraud, 11 counts of fraudulent use of personal information, one count of breaking into an electronic device and another for organized fraud. His bail was set at $725,000. Federal officials are also charging Nima Fazeli and Mason John Sheppard with aiding in the “intentional access of a protected computer” and conspiracy to commit wire fraud and money laundering, according to criminal complaints published Friday.

DeFi Lab
Crypto exchange operator Huobi Group is forming a new fund to invest tens of millions of dollars of its own capital in the decentralized finance (DeFi) space. Huobi Group said in an announcement Monday it has launched a new business unit called Huobi DeFi Labs to manage the fund. The group will focus on research, investment and incubation of DeFi-related projects, and has brought on former banker Sharlyn Wu to lead the initiative.

Hacker Effects
A Spanish cryptocurrency payments app and card issuer has admitted it won’t be able immediately to repay users affected by Friday’s $1.4 million hack and has offered a compromise instead. Madrid-based 2gether said Sunday it hadn’t been able to find the funds to reimburse all users the €1.2 million stolen by hackers – 26.79% of the firm’s total funds – on Friday evening. The firm has offered to reimburse investors in native 2GT tokens at the issuance price of just under $0.06. “We can assure you, with a great deal of chagrin, that if we could face this theft with our own funds, we would,” the announcement reads.

Market intel

Related: Blockchain Bites: Dollar’s Decline, Ether’s Moneymakers and Coinbase’s Considerations

Tokenized BTC
The supply of tokenized bitcoin grew more than 70% in July. More than 20,000 BTC (~$225 million) are now tokenized using Ethereum-based protocols. Wrapped Bitcoin (WBTC) represents over 76% of the total tokenized bitcoin supply with over 15,500 BTC tokenized. The total supply grew by roughly $96 million in July, following June’s record growth.

Dex Volume
July trading volume on decentralized exchanges set its second consecutive record high, rising 174% from June, according to data from Dune Analytics. Aggregate trading volume on decentralized exchanges reached $4,32 billion in July, up from $1.52 billion in June. 41% of July’s volume came from Uniswap, on which traders speculate on assets ranging from “a better Bitcoin” to a coin named after fried chicken.

Opinion

Value Judgments
Crypto is inherently disruptive. In this week’s Crypto Long & Short newsletter, CoinDesk’s Galen Moore asks whether decentralization – and its attendant change making – creates or destroys value within the crypto space. “The “Robinhood Effect” may represent a threat to crypto from stocks, which also seem to now trade unencumbered by fundamentals, via onramps that broaden access,” he writes. 

DeFi Defines Ethereum
DeFi Dad, an organizing member of the Ethereal Summit and Sessions and DeFi super user, thinks Etheruem has found a narrative it can latch onto. “Five years ago, you could argue Ethereum was attempting to do too much. Even two to three years ago, that was still a valid hypothesis, with stagnant adoption,” he writes. 

Podcast Corner

Bitcoin, Sex and Feminism
Chaturbate is among the few traditional porn sites that has integrated crypto in a meaningful way. COO Shirely Lara joins CoinDesk’s Leigh Cuen for an in-depth discussion about bitcoin, sex and feminism.

Who won #CryptoTwitter? Related Stories

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Cryptocurrencies are working their way back Monday after Sunday’s big flash crash.

• Bitcoin (BTC) is trading around $11,417 as of 20:00 UTC (4 p.m. ET), gaining 2.1% over the previous 24 hours.
• Bitcoin’s 24-hour range: $10,913-$11,485
• BTC above 10-day and 50-day moving averages, a bullish signal for market technicians.

A bullish run for bitcoin past $12,131 was interrupted Sunday, as bitcoin endured a sudden drop, losing over $1,400 within a brief period of time.

Read More: Flash Crash: Bitcoin Price Slides by $1.4K in Minutes

Related: Ripple Snaps XRP Sales Slump With $33M of the Crypto Sold in Q2

“The market had rallied strongly from $9,000 to over $12,000,” said Rupert Douglas, head of institutional sales for crypto brokerage Koine. “The reaction down was purely to shake out the weak longs who had got in at the higher levels,” Douglas added. 

Indeed, hourly liquidations spiked to over $147 million on derivatives platform BitMEX on Sunday. As the price began trending downward, derivatives traders going long saw their positions automatically sold, the crypto equivalent of a margin call, on the Seychelles-based exchange. 

The highest BitMEX liquidation during the session was a $10 million long position. “There were a lot of high-levered long day traders who were liquidated and are licking their wounds as a result,” said John Willock, CEO of digital asset liquidity provider Tritum. 

The amount of spot bitcoin trading on Coinbase Sunday was higher than normal, at $318 million. In fact, Sunday was the second-highest volume day in the past month, following a $446 million day on July 27. 

Related: Travel Management Firm CWT Pays Out $4.5M in Bitcoin After Ransomware Attack

“The rest of the market seems to have had a big appetite to accumulate bitcoin at $1,000 off, now working its way back to $12,000 and beyond,” Willock added. “I see it as a stumble and we’re back on track.” 

Read More: Bitcoin Investors Unshaken by Sunday’s Flash Crash, Data Suggests

Bitcoin is still 5.8% off of its Sunday high, while ether is down 5%. 

Ether closing in on $400

The second-largest cryptocurrency by market capitalization, ether (ETH), was up Monday trading around $394 and climbing 4.4% in 24 hours as of 20:00 UTC (4:00 p.m. ET). 

Ether was not spared Sunday’s flash crash, falling as low as $325 before recovering. Some traders claim they took advantage of the dip. “We had expected ETH to fall back to the low $300s and accumulated there,” said Jack Tan, managing partner of Taiwan-based quantitative trading firm Kronos Research. 

Karl Samsen, vice president of capital markets for trading firm Global Digital Assets, told CoinDesk ether is separating itself from bitcoin and is actually helping push the alternative cryptocurrency, or altcoin, market. “Bitcoin is rebalancing itself, as it was the previous leader,” Samsen said. “Ether is tearing up the market, and it’s bringing alts up with it. We’re still very bullish on mid- to low-market-cap alts.”

Read More: Nearly $100M in Bitcoin Moved to Ethereum in July, Led by Retail Traders

Other markets

Digital assets on the CoinDesk 20 are all in the green Monday. Notable winners as of 20:00 UTC (4:00 p.m. ET): 

• xrp (XRP) + 10%
• qtum (QTUM)+ 8.3%
• bitcoin sv (BSV) + 7.1%

Read More: July Was a Runaway Month for Crypto Returns

Equities:

• Asia’s Nikkei 225 ended the day in the green 2.2%, boosted by Yahoo Japan Corp. stock up a mouth-watering 17.9%.
• Europe’s FTSE 100 closed up 2.2% as manufacturing activity on the continent shows signs of positive growth.
• The United States’ S&P 500 gained 0.90% led by tech stocks, including Microsoft, up 5% on possible social video app TikTok acquisition news.

Read More: Twitter Hacker Owns $3.4M in Bitcoin, Court Sets Bail at $725K

Commodities: 

• Gold is flat, in the green 0.07% and at $1,976 as of press time.
• Oil is up 0.90%. Price per barrel of West Texas Intermediate crude: $40.81

Read More: Electric Capital’s New $110M VC Fund Is 90% Institutions

Treasurys:

• U.S. Treasury bonds are mixed Monday. Yields, which move in the opposite direction as price, were down most on the two-year, in the red 5%.

Read More: Inside a Crypto ‘Ponzi’: How the $6.5M Banana.Fund Fraud Unravelled

Related Stories

• Bitcoin Investors Unshaken by Sunday’s Flash Crash, Data Suggests
• Flash Crash: Bitcoin Price Slides by $1.4K in Minutes