CoinDesk Crypto

A digital rights advocacy group in Venezuela said its government has blocked user access to two currency exchange platforms.

• According to Venezuela Inteligente, President Nicolas Maduro’s government is denying its citizens from accessing U.S. crypto exchange Coinbase and fiat remittance platform MercaDolar.
• Inteligente said the move, discovered late Tuesday evening, has no clear outcome or objective but that internet service providers (ISPs) have been part of the move to block access.
• “Crypto exchanges have been blocked in the past,” said director of Venezuela Inteligente Andres E. Azpurua in reference to ISPs blocking via a DNS block. “Until recently all of them were lifted.”
• “Venezuela has a history of blocking exchange platforms,” Azpurua added. “Especially those used to exchange local currency for foreign currency.”
• Azpurua also said the move to block access to Coinbase “particularly bothers” him as there is an abundance of crypto exchanges currently accessible to Venezuelan citizens and it’s unclear why the San Francisco-based exchange might be singled out.
• On Aug. 28, Venezuelan ISPs blocked access to two major virtual private networks – Tunnelbear and Psiphon – services that can circumvent DNS blocks, but appeared to have a minor impact on their functionality.
• Political tensions are beginning to boil over as the country’s opposition leader and self-proclaimed interim President Juan Guaido announced a “unitary pact.”
• The pact, supported by a coalition of parties, is demanding increased international pressure against Maduro ahead of a congressional election in December.
• Attempts at capital controls over who receives what type of funding in a politically charged climate could be just one reason among many for the recent ISP blocks, Azpurua noted.

Benjamin Powers contributed reporting.

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The New York Attorney General’s office (NYAG) wants Tether and Bitfinex to immediately turn over documents detailing a $900 million line of credit the first entity extended to the second, according to a new filing with a public court system.

The NYAG’s office began a formal inquiry into Bitfinex and Tether last April, when it alleged Bitfinex had lost access to more than $850 million in customer and corporate funds and covered up the shortfall by borrowing from Tether, with which it shares executives and corporate owners. The NYAG won a ruling that ordered the companies to turn over information pertaining to the extension of credit and the firms’ relationship. The respondents appealed, but lost the appeal in July.

“In the time since the [appeals court’s] ruling, the parties attempted to resolve this matter, unsuccessfully,” the filing, dated Sept. 8 (or exactly 61 days from when the appeals court ruled) said.

Related: Bitfinex Invests in Derivatives Exchange Built With Bitcoin’s Lightning Network

NYAG’s inquiry into Bitfinex and Tether, currently the largest stablecoin issuer, revealed there was a period in which the U.S. dollar-pegged USDT stablecoin was only about 74% backed by reserves. Tether later said its token was fully backed, but didn’t specify what makes up its reserves.  

The NYAG’s office is now hoping to meet with New York Judge Joel Cohen, who is overseeing the case, and to argue for a new order with a strict 60-day deadline for the crypto companies to turn over the documents.

Read more: New York Attorney General Calls Bitfinex’s Legal Stance ‘Deeply Perverse’ in New Filing

“At the conference we seek, the OAG [Office of the Attorney General] will request that the Court order the immediate production of documents and information by Respondents as required under the April 24, 2019 Order … to be completed no later than sixty (60) days from the date of the requested order,” the filing said. “The OAG will also request that the Court extend the injunction previously entered in this matter for an additional ninety (90) days.”

Related: First Mover: Buying Bitcoin’s Dip, Betting Against Tether and Weighing the Jobs Report

The injunction in question prohibits Tether from lending any more funds to Bitfinex.

“Despite our best efforts, we were not able to reach an agreement. While we continue to be willing to discuss a potential resolution, we will file our response to the proposed next steps in due course. We will continue to pursue a fair and reasonable process,” Bitfinex and Tether General Counsel Stuart Hoegner said in a statement sent by a spokesperson.

This follows a July statement where he said, “We will respect the court’s order.”

For its part, Bitfinex has sought subpoenas against various banks to try and recover its missing customer funds, which it held with Crypto Capital, an unlicensed “shadow bank” whose operator, Reginald Fowler, was arrested last year and is awaiting trial.

Crypto Capital’s holdings, which apparently included some of Bitfinex’s funds, were seized by U.S., U.K. and Polish authorities, and Bitfinex has yet to recover any of these funds.

Read the full letter below:

UPDATE (Sept. 9, 12:35 UTC): This article has been updated with a statement from Bitfinex and Tether.

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The New York Attorney General’s office (NYAG) wants Tether and Bitfinex to immediately turn over documents detailing a $900 million line of credit the first entity extended to the second, according to a new filing with a public court system.

The NYAG’s office began a formal inquiry into Bitfinex and Tether last April, when it alleged Bitfinex had lost access to more than $850 million in customer and corporate funds, and covered up the shortfall by borrowing from Tether, with which it shares executives and corporate owners. The NYAG won a ruling that ordered the companies to turn over information pertaining to the extension of credit and the firms’ relationship. The respondents appealed, but lost the appeal in July.

“In the time since the [appeals court’s] ruling, the parties attempted to resolve this matter, unsuccessfully,” the filing, dated Sept. 8 (or exactly 61 days from when the appeals court ruled) said.

Related: Bitfinex Invests in Derivatives Exchange Built With Bitcoin’s Lightning Network

NYAG’s inquiry into Bitfinex and Tether, currently the largest stablecoin issuer, revealed that there was a period in which the U.S. dollar-pegged USDT stablecoin was only about 74% backed by reserves. Tether later said its token was fully-backed, but didn’t specify what makes up its reserves.  

The NYAG’s office is now hoping to meet with New York Judge Joel Cohen, who is overseeing the case, and to argue for a new order with a strict 60-day deadline for the crypto companies to turn over the documents.

Read more: New York Attorney General Calls Bitfinex’s Legal Stance ‘Deeply Perverse’ in New Filing

“At the conference we seek, the OAG will request that the Court order the immediate production of documents and information by Respondents as required under the April 24, 2019 Order … to be completed no later than sixty (60) days from the date of the requested order,” the filing said. “The OAG will also request that the Court extend the injunction previously entered in this matter for an additional ninety (90) days.”

Related: First Mover: Buying Bitcoin’s Dip, Betting Against Tether and Weighing the Jobs Report

The injunction in question prohibits Tether from lending any further funds to Bitfinex.

A spokesperson for the companies did not immediately return a request for comment. In a July statement, Bitfinex and Tether general counsel Stuart Hoegner said, “we will respect the court’s order.” 

For its part, Bitfinex has sought subpoenas against various banks to try and recover its missing customer funds, which it held with Crypto Capital, an unlicensed “shadow bank” whose operator, Reginald Fowler, was arrested last year and is awaiting trial.

Crypto Capital’s holdings, which apparently included some of Bitfinex’s funds, were seized by U.S., UK and Polish authorities, and Bitfinex has yet to recover any of these funds.

Read the full letter below:

Related Stories

• Tether, Bitfinex File Motion to Dismiss Market Manipulation Lawsuit
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More than 30% of new customers at bitFlyer, a major Japanese crypto exchange, are in their 20s, the exchange said.

• BitFlyer conducted a survey of Japanese customers who opened accounts this year between January and July, with 539 responding, CoinDesk Japan reported Tuesday.
• The number of new customers in their 20s doubled from a 2018 survey, when just 18% of respondents were part of that age group. In contrast, the percent of respondents in their 30s, 40s, 50s and 60s all shrank relative to two years ago.
• BitFlyer’s marketing manager Kenichi Nishimura cited the COVID-19 pandemic as one reason for the influx, saying young investors were looking for alternatives to the traditional stock market after major global indices crashed. Other concerns include a Financial Services Agency report saying pensions might not be sufficient to live on by the time individuals in their 20s retire.
• The crypto exchange claims its largest group of users remains in the 30-39 age range, both in Japan and its overseas markets.
• CoinDesk reported earlier this year that Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group, three of Japan’s biggest banks, are looking at developing a digital payment system that could support a shift away from physical cash without requiring crypto.

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• European Crypto Exchange Falls Victim to $1.6M Hack

Hedge fund manager Arca is stepping up its campaign to overhaul Gnosis, claiming the decentralized exchange and prediction market platform has deviated from its original mission.

• Over the summer, Arca discreetly asked Gnosis to make a tender offer for all circulating GNO tokens, giving investors the opportunity to cash out. Those who declined the offer should be rewarded with a 10-for-1 token split for sticking it out while Gnosis gets its house in order, according to an August slide deck outlining Arca’s proposal.

• The Block reported on Arca’s proposal last week.

• In a blog post published Tuesday, Arca Chief Investment Officer Jeff Dorman wrote that while his firm never intended for its feedback to Gnosis to become public, he’s glad it’s generated a discussion regarding token holders’ rights. The implication is that a token issuer has an obligation to these investors to stick to the business plan they signed up for.

• The post is Arca’s first public comment on the simmering tensions between the firm and Gnosis. It comes at a time when decentralized prediction markets like Gnosis are struggling to gain traction.

The post describes Gnosis’ $12.5 million 2017 token sale (which valued the project at $300 million) as an “interest-free loan.” After borrowing the money, the team “failed to deliver the products laid out in its fundraising whitepaper,” Arca contends. The products Gnosis created generate value only for its management, Arca claims.

• Luckily for all involved, the balance sheet has increased fivefold, as a result of ether (ETH) appreciating, leaving Gnosis with ample resources ($55 million worth of the second-largest cryptocurrency and $10 million of cash) to repay investors, Arca said.

• Dorman wrote that Arca often works with management teams throughout the lifecycle of an investment to achieve the goals of the community, which he described as a typically productive and mutually beneficial process. This was not the case with Gnosis, however.

• “Despite our constructive engagement, Gnosis did not take any necessary steps to remedy issues we’ve uncovered throughout our continuous due diligence and research process,” wrote Dorman. “In fact, the very first time we heard of ANY steps indicating that Gnosis is willing to remedy the issues we uncovered was as a promissory quote in the Block article, where [Gnosis founder Martin] Köppelmann commented on redoing the tokenomics of the GNO token”

In that article, Köppelmann is quoted as saying Gnosis “had already been working on an alternative path for the GNO token, which we think is much more appealing. Our own proposal includes a Gnosis DAO and gives much more ownership to GNO holders. It will be presented to the community very soon.”

• To Dorman’s mind, that quote suggested that Gnosis was open to the idea of changing its setup to better align with token holders, but was strident about what steps needed to be taken.

• “Token holders like us should not have to beg a company to disseminate a plan, nor should we have to continue to wait for promises with no details,” wrote Dorman. “For this so-called plan Mr. Köppelmann alludes to, give us a date, give us an outline, give us specific details so that the Gnosis community has the chance to provide feedback.”

• Lacking that specific feedback, Dorman stood behind Arca’s call in the slide deck for Gnosis to repay its “loan” by tendering for outstanding tokens “at the book value of its balance sheet (ETH + USD), which at current ETH prices would return over $74 per GNO token to token holders and Gnosis employees, even after reserving a generous amount of runway so that Gnosis can continue to run their business uninterrupted.”
• If all holders of the 460,000 tokens in circulation took such an offer, the payout would total $34 million. And if all the money Gnosis has on hand were returned to investors, it would come to $140 per token, or $65 million, according to Arca. Either deal would handily beat the $46.46 level GNO currently trades at on the open market.

Related: European Crypto Exchange Falls Victim to $1.6M Hack

Attempts to reach Gnosis for comment Tuesday were unsuccessful.

Big picture: The situation suggests that in addition to cash and cachet, institutions are bringing activist investing strategies to crypto.

• DigixDAO, an early initial coin coin offering (ICO) which faced a situation where its treasury was more than its market cap, faced similar activist investor behavior when it offered a question to the community – dissolve the treasury or continue making grants?

• In Wall Street parlance, a tender offer is a public solicitation to all shareholders requesting that they tender their stock for sale at a specific price during a certain time. The investor normally offers a higher price per share than the company’s stock price, providing shareholders a greater incentive to sell their shares. Arca is adapting this concept to the crypto world.

• Activist investors buy up large shareholdings in companies to acquire board seats and agitate for management and strategic changes. They have become a staple of Wall Street over the last decade, ballooning from $12 billion under management in 2003 to the activist asset class topping $112 billion by 2014.

Read more: Prediction Markets’ Time Has Come, but They Aren’t Ready for It

Correction (Sept. 8, 23:20 UTC): An earlier version of this article overstated the proceeds from Gnosis’ 2017 token sale. They totaled $12.5 million, valuing the project at $300 million.

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Despite three “51% attacks” in a month, Ethereum Classic’s price has demonstrated strong resilience. Though down a bit for the past month, its persistence may indicate that security is not a top priority for investors rushing to join a bull run in the crypto market.

However, some warn that unless it improves its blockchain and makes it safer, additional attacks on Ethereum Classic could trigger a market sell-off and lead to a collapse of its digital asset.

For a blockchain network’s security, a “51% attack” is pretty much as bad as it gets. That’s when a single entity gains control of a majority of the network’s computing power, allowing it to siphon off extra units of the currency in what’s known as a double-spend. 

Related: Ethereum Classic Labs Airs New Plan to Stop Future 51% Attacks

So it would stand to reason that three successful 51% attacks in a month against the Ethereum Classic blockchain might dent investors’ confidence. But prices for the project’s native ETC token haven’t really taken a hit – a sign traders could be less concerned about security vulnerabilities than a quick profit in fast-moving cryptocurrency markets.

At press time, ethereum classic is trading at $5.06, down about 27% in the past 30 days at the same time bitcoin is off by 15%. 

Three 51% attacks in a month

For the Ethereum Classic blockchain, 51% attacks have been a threat for a long time. Unlike Ethereum, from which it was hard forked, the Ethereum Classic network is committed to the Proof-of-Work (PoW) consensus algorithm, which is also used by BItcoin. But for large networks like Bitcoin, a 51% attack is prohibitively expensive to do given the enormous amount of computational power required by PoW to successfully do it. Ethereum Classic’s hashrate is much smaller, making it far more vulnerable to 51% attacks.

Related: Ethereum Classic Hit by Third 51% Attack in a Month

By press time, the hashrate of Ethereum Classic stood at 1.668 terahash per second, while Bitcoin’s at 117.95 exashes per second, according to BitInfoCharts.

Ethereum Classic is the product of a hard fork after the Ethereum network split in different ways following an infamous hack in 2016. The PoW-based blockchain has been chasing after Ethereum, which now represents the No.2 cryptocurrency by market capitalization.

Ethereum is planning on changing its algorithm sometime next year. In a tweet thread Sept. 2, Ethereum founder Vitalik Buterin argued Ethereum’s planned Proof-of-Stake (PoS) algorithm gives it a “key fundamental” advantage over PoW.

“In PoW, on the other hand, a successful attacker can just attack over and over again, with no possible way to delete their hardware without deleting everyone else’s hardware.”

During the month of August, the Ethereum Classic network suffered not one but three 51% attacks: the first one took place on Aug. 1, the second on Aug. 6 and a third on Aug. 29.

NiceHash, a hashpower broker, acknowledged its platform may have facilitated the recent 51% attacks, in a blog post on Sept. 1, but it also concluded that such attacks cannot be prevented or mitigated in a “truly decentralized proof-of-work solution.”

“The only thing one can do is make the price of an attack higher than the attacker reward,” the post added.

The Ethereum Classic network also suffered a 51% attack in early 2019, which led crypto exchange Coinbase to halt all ETC transactions, withdrawals and deposits at the time.

James Wo, founder of ETC Labs, the leading organization supporting the Ethereum Classic network, told CoinDesk via a spokesperson that his team has been trying to enhance the network’s security in the past year, including expanding the network’s core development team, and partnering with companies such as Chainlink, Swarm and Bloq.

The company announced two new hires on Sept. 3 to ETC’s core development team.

“These developments and partnerships are working to quickly propel the advancement of ETC and ensure a bright future for the network,” Wo said, who added that ETC’s price has held “strong” even with the recent 51% attacks.

Indeed, the attacks have not had any significant impact on its prices, which prompted a question: why would anyone put money in a token when its security is not guaranteed?

An unattractive gift

A large percentage of ETC holders received their tokens involuntarily after the Ethereum chain split and, as a result, the price of ETC has remained stable over the past few years simply because many ETC holders have ignored taking any actions.

“Many people are just sort of sitting on it and maybe not necessarily thinking about trading [ETC] or not necessarily actively monitoring their transition,” Meltem Demirors, the chief strategy officer at CoinShares, said in a phone interview with CoinDesk. “Because a lot of people who hold assets from a fork don’t really have any incentive to sell them unless the value goes up dramatically.”

Citing the fact that a large number of Ethereum Classic wallets have been inactive, Demirors said some ETC holders may not see the value of selling or even claiming their ETC.

“I don’t know how motivated they are to actually try to sell or try to move their assets to a wallet or on an exchange,” she said. “A lot of people just don’t think it’s worth the effort and energy.”

Similar to DeFi

Ethereum Classic’s price resilience during these attacks tells the story that the majority of crypto investors right now are more focused on “short-term” price momentum trades than “long-term” chain security and fundamentals, according to John Todaro, director of institutional research at the cryptocurrency analysis firm TradeBlock.

“Price momentum in the space has accelerated recently and security concerns are being pushed aside to an extent,” he told CoinDesk via email. “While Ethereum Classic has legitimate long-term concerns given the recent 51% reorg attacks, we have not seen heightened capital outflows from ETC.”

That is in line with the red hot decentralized finance (DeFi) world where capital continues to be allocated despite warnings of high risks with certain yield farming smart contracts. 

“You see people putting billions of dollars of their digital assets into unaudited smart contracts, right now I’m not sure people are really so concerned about security,” Demirors said.

And as long as the market remains in bull mode, it is likely that traders will compromise their security concerns for higher returns – until that security problem becomes big enough to trigger a collapse of the entire system.

In the DeFi world, that problem could be a few smart contract bugs. In Ethereum Classic, it could be a large-scale dump of the token as a result of any additional 51% attacks, Todaro warned.

That is not entirely impossible: After the first two attacks in August, crypto exchanges contemplated or else took drastic measures which would make ETC less accessible and attractive to investors. OKEx said that it will consider delisting the asset, and Coinbase extended deposit and withdrawal confirmation times for ETC to around two weeks.

“I think the big mover will be exchanges delisting Ethereum Classic and there are no longer any venues where you can trade it easily,” Demirors said. “I think then you may see people say ‘ok, maybe I should take my Ethereum Classic and liquidate it before it becomes impossible to do so.’”

Grayscale’s role

While some have attributed crypto financial giant Grayscale’s position on ETC to its relatively stable pricing, the company refused to admit its influence on ETC’s trading.

“It would be very difficult for us to comment or point to our operating a vehicle around a particular protocol as being influential to the prices,” Michael Sonneshein, managing director of Grayscale, said in a phone interview with CoinDesk, pointing out his company also has large positions in bitcoin and ether. Grayscale, like CoinDesk, is a unit of Digital Currency Group.

But according to Demirors, there are only a “small” number of financial investment firms – Grayscale included – involved in this digital asset, making it natural that Grayscale is in the spotlight when it comes to Ethereum Classic.

“[Grayscale] holds a sizable percentage of the circulating supply in Ethereum Classic, which is locked up in the trust that will never be liquidated,” she said. “So I think some of those natural factors, which can drain the supply of Ethereum Classic on the market, have a dampening impact on the price.”

As of July 31, 2020, Grayscale’s Ethereum Classic trust had $86.4 million of assets under management. That was equal to about 10% of Ethereum Classic’s market cap of  $861.7 million on that date. As of press time, total market cap was down to $619.8 million.

The recent 51% attacks on the Ethereum Classic network also have not led to any additional questions or worries from Grayscale’s clients on this crypto asset, according to Grayscale’s Sonneshein. Grayscale started its ETC Trust in April 2017.

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Bitcoin is stuck around $10,000 with little price action while some ether holders have pulled out of the DeFi ecosystem.

• Bitcoin (BTC) trading around $10,014 as of 20:00 UTC (4 p.m. ET). Slipping 1.1% over the previous 24 hours.
• Bitcoin’s 24-hour range: $9,920-$10,439
• BTC below its 10-day and 50-day moving averages, a bearish signal for market technicians.

Scant action in the bitcoin market over the weekend was a welcome respite from the downward trend since the start of September, when prices hit as high as $12,083 on spot exchanges such as Coinbase. 

Read More: Bitcoin Options Suggest Investors Hedging but Still Long-Term Bullish

Related: CoinDesk 20 Update: OXT Is In, BAT Is Out

“The important thing is that we’ve held the $10,000 mark, and I’d expect we re-build slowly from here,” said Chris Thomas, head of digital assets for Swissquote Bank. 

Rupert Douglas, head of institutional sales for crypto brokerage Koine, isn’t ruling out a further drop. “It’s tough right now to say how far BTC retraces,” he told CoinDesk. “My concern is around equities, where I believe tech is in a bubble not dissimilar to 2000,” he added. 

The equities markets are mixed Tuesday, with some hopeful numbers out of Asia while the European and U.S. markets are tanking.  

• Asia’s Nikkei 225 ended the day up 0.80% as positive Chinese trade balance data boosted economic optimism in the region.
• Europe’s FTSE 100 closed in the red 1% as concerns about Brexit and trade issues with the greater European Union dragged the index lower.
• The United States’ S&P 500 lost 2.8% as the technology sector continues a tumble that started last week, most notably Apple descending 6.7%.

“I think we are going to see significantly lower equity prices soon, but will BTC be correlated as it was the last time when equities lurched lower in February and March? That is the question,” added Koine’s Douglas. 

Related: Why Bitcoin Investors Aren’t Worried About This Price Pullback

Over the past month, bitcoin dropped over 13% while stock indexes, aided by the tech sector and various stimulus packages by governments, have been holding up better than the bellwether cryptocurrency.

In the derivatives markets, open interest in bitcoin futures have declined to the lowest level since early July, currently around $3.7 billion. 

“Bitcoin futures volumes have been lower the last few days, partly because of the U.S. Labor Day weekend, but also we reverted more towards average volume days after having some large days last week,” added Swissquote’s Thomas. Indeed, this past Tuesday, volume spiked at $5.1 billion before dropping off.

Read More: August’s Bitcoin Rally Led to Record Crypto Derivatives Volumes: Report

While bitcoin was relatively quiet over the long U.S. weekend, decentralized finance, or DeFi, again stole the show in crypto surrounding the SushiSwap project, drama that Thomas hopes can fade quickly. “To me, it’s important we just hold steady for a while and the DeFi space has a calm few weeks with no more crazy unaudited projects causing problems,” added Thomas. 

Read More: SushiSwap’s Billion-Dollar ‘Rug Pull’ Is Thriller to Crypto Geeks

DeFi value drops

The second-largest cryptocurrency by market capitalization, ether (ETH), was down Tuesday, trading around $336 and slipping 3.3% in 24 hours as of 20:00 UTC (4:00 p.m. ET).

Read More: What is Yield Farming? DeFi’s Hot Trend, Explained

For the first time in data aggregator DeFi Pulse’s charts, the total value locked in DeFi has decreased. The amount locked surpassed $9.5 billion on Sept. 1, fell almost $2 billion by Sept. 5 and then recovered slightly.

“This is probably caused by the drop in [the] ETH price,” said Jun Yi, a Singapore-based DeFi yield farmer. “ETH dropped around 30%. There is a cascading effect,” he added. 

It appears that ether holders in particular started pulling out, with over 440,000 ether “unlocked” Sept. 4-5 after a slight recovery.

On the other hand, the number of bitcoin locked in DeFi is still trending up, crossing the 80,000 BTC threshold on Tuesday. 

Read More: Bitcoin Mining Equipment Maker Canaan Sets $10M Buyback Program

Other markets

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

• tron (TRX) + 9.6%
• monero (DASH) + 1.2%
• orchid (OXT) + 0.76%

Read More: DeFi Is Hot but Retail Interest Nowhere Close to ICO Frenzy

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

• nem (XEM) – 4.6%
• zcash (ZEC) – 4.4%
• chainlink (LINK) – 3%

Read More: European Crypto Exchange Falls Victim to $1.6M Hack

Commodities:

• Oil is down 5.5%. Price per barrel of West Texas Intermediate crude: $36.91.
• Gold was flat, in the green 0.08% and at $1,930 as of press time.

Read More: Diginex Raises $20M Ahead of SPAC Listing on Nasdaq

Treasurys:

• U.S. Treasury bond yields all slipped Tuesday. Yields, which move in the opposite direction as price, fell most on the 10-year, in the red 5.2%.

Read More: Visa Adds Crypto Lender Cred to Fast Track Payments Program

Related Stories

• Bitcoin News Roundup for Sept. 8, 2020
• First Mover: SushiSwap’s Billion-Dollar ‘Rug Pull’ Is Thriller to Crypto Geeks

The CoinDesk 20 has made its first change since launching in July: Orchid (OXT), issued by Orchid Labs Inc., developer of virtual private network (VPN) software designed to be decentralized and open source, has replaced the basic attention token (BAT) issued by Brave Software Inc., developer of the Brave browser.

First rolled out two months ago, the CoinDesk 20 is a list of the digital assets that matter most to the market. We filter by consistent, verifiable volume, listing the 20 assets that have the most volume on trusted exchanges for two consecutive quarters. It was initially composed of exchange volume data gathered in Q4 of 2019 and Q1 of 2020. Since the launch, we’ve updated the list using data from Q1 and Q2 of 2020. 

Related: Market Wrap: Bitcoin Hangs Around $10K; Locked DeFi Value Drops

Our goal with the CoinDesk 20 is to develop an objective method for filtering assets, not by their investment or speculative potential but by their currency with traders and investors. Our set of eight trusted exchanges, which provide the exchange volume data used to create the list, is conservative by design. 

Orchid’s price pumped in the past month, benefiting from attention from David Portnoy, a publisher and media personality. It’s worth reiterating the dollar volume that put Orchid in the CoinDesk 20 preceded this pump. It’s possible it came in anticipation of Orchid’s mobile and desktop apps, released in July. 

For investors learning about Orchid for the first time, inclusion in the CoinDesk 20 may signal it is an asset with some level of staying power in the market. Intelligent investors need that assurance before devoting time and resources to researching or trading a new asset. 

In the weeks since the start of Q3, we gathered the requisite data on Orchid to populate its asset price page. There, in addition to the price graph, you’ll find volume, volatility, returns and a handful of on-chain metrics designed to provide a snapshot of the asset’s fundamentals, as well as CoinDesk’s news reporting and video content. 

Related: Market Wrap: Bitcoin Tanks to $10.4K; ETH Market Dominance at 2020 High

We welcome your feedback on the CoinDesk 20 as a product. A detailed look at the methodology behind it is available here. Please contact CoinDesk Research with questions, comments, etc. You can reach us on research@coindesk.com.

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• Market Wrap: Bitcoin Breaks $12K; Uniswap Crosses $1.5B Locked
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Canaan, a maker of equipment for the mining of bitcoin, announced on Tuesday its board of directors has approved a share repurchase program of up to $10 million, or about 3.3% of outstanding shares.

• Based in China but listed on the Nasdaq exchange last year, Canaan’s shares have consistently traded below their initial public offering price of about $9 a share, and currently trade for less than $2.
  
• Canaan said it will repurchase up to $10 million worth of its American depositary shares (each ADS represents 15 Class A shares) and/or Class A shares directly over a 12-month period starting Sept. 22. 
  
• Canaan said it plans to finance the buyback using its existing cash balance. 

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• Bitcoin Miners Saw 23% Revenue Increase in August
• Protection Over Profit: What Early Mining Patterns Suggest About Bitcoin’s Inventor
• Canaan’s Q2 Loss Narrows to $2.4M From Q1 on 160% Revenue Increase
• Energy Giant Equinor to Cut Gas Flaring With Bitcoin Mining: Report

A Lightning-based derivatives platform took in pre-seed capital, a new blockchain analyst will try to track down missing funds from the defunct QuadrigaCX exchange and CoinDesk looks at how retail interest in DeFi compares to the infamous ICO bubble.

Top shelf

DeFi interest?
Retail interest in decentralized finance (DeFi) applications remains quite low compared to the initial coin offering (ICO) bubble, measured by Google search queries, CoinDesk’s Omkar Godbole reports. Indexed to the peak of searches for “ICO,” searches on Google Trends for the word “DeFi” currently return a value of 18, indicating the retail crowd is as interested in open-source finance as they were in ICOs during the latter’s boom. Put in context, these searches come amid a period when the total value locked into the DeFi ecosystem has increased 1,300% to above $9 billion this year, approximately 66% higher than the $5.4 billion raised by ICOs in 2017. This disparity between searches and capital may indicate that DeFi’s growth is being driven by savvy investors.

Quadriga update
In the latest legal update to the 18-month long QuadrigaCX saga, Canadian law firm Miller Thomson has hired a consultancy firm to perform blockchain analytics as it works to return $200 million in crypto customers are said to have lost, after the exchange’s chief executive died under mysterious circumstances. The firm, Kroll, will pair with its “strategic partner” Coinfirm to analyze a subset of transaction data, CoinDesk’s Nikhilesh De reports, for a $50,000 CAD ($38,000 U.S.) fee. Miller Thomson noted it could not begin the process of disbursing funds until Ernst & Young (EY) finalizes its record of who is owed what and the Canada Revenue Agency has completed its audit of the exchange. So far, about $46 million CAD (around $35 million U.S.) has been recovered.

Related: First Mover: SushiSwap’s Billion-Dollar ‘Rug Pull’ Is Thriller to Crypto Geeks

Fraud accusations
Yaroslav Shtadchenko, former project manager at now defunct crypto fund Bitsonar, has formally accused his former employer of six criminal offenses including fraud. Filing a notice of criminal offence with the Federal Bureau of Investigation, Shtadchenko said he “became aware that Bitsonar was actually a financial pyramid” last spring, CoinDesk’s Anna Baydakova reports. Bitsonar was an investment firm that managed to raise up to $2.5 million in crypto from investors. The exchange froze withdrawals in February and the website went offline in August.

Lightning round
Bitfinex and other early-stage Bitcoin startup investors led a pre-seed funding round for the Lightning Network-based derivatives platform LN Markets. Launched in March 2020, LN Markets has reached nearly $10 million in aggregate traded volume and has over 100 channels connected to its exchange, CoinDesk’s Zack Voell reports. It’s designed to avoid slow and costly on-chain transactions by connecting traders to a bitcoin (BTC) derivatives market by “streaming” their funds through the Lightning Network. Bitfinex’s CTO Paolo Ardoino said, “This is one of our first public investments and underlines our support for the Lightning Network.”

AWS solutions
Indian tech giant Tech Mahindra announced it will offer blockchain solutions built to global customers using Amazon Web Services (AWS). The company will provide solutions for aviation, telecom, and health-care supply chains and is planning to roll out support for multiple industries, including oil and gas and manufacturing, over the next 12 months. Ensuring supply chain continuity has become the focal point with businesses struggling to facilitate continuity in the current COVID-19 world, according to Rajesh Dhuddu, blockchain and cybersecurity practice leader, Tech Mahindra.

Quick bites

• Bithumb Exchange’s Offices Raided Again by Korean Authorities: Report (Paddy Baker/CoinDesk)
• Bitcoin Banking App Mode Eyes £40M UK Listing (Paddy Baker/CoinDesk)
• European Crypto Tax Companies Announce Merger to Power US Expansion (Paddy Baker/CoinDesk)
• Chainlink nodes were targeted in an attack last weekend that cost them at least 700 ETH (Yogita Khatri/The Block)
• SushiSwap Victims Urged to Lawyer up (Adriana Hamacher/Decrypt)

At stake

Sushi rolls
Over the weekend the creator of the breakout DeFi phenomenon SushiSwap cashed out, leaving trusting investors high and dry. 

Related: Crypto Long & Short: What Investors Get Wrong About Volatility (and Not Just for Crypto)

SushiSwap, a fork of Uniswap, aimed to further decentralize the automated money market by sharing revenues through a liquidity provider token (LP), called sushi (SUSHI). 

The protocol leveraged a unique strategy of “zombie mining,” meant to draw liquidity and participants from Uniswap, by paying out extra LP tokens for users staking sushi on Uniswap. In just a week and a half, approximately $1.27 billion was raised, CoinDesk’s Will Foxley reports. 

On Saturday, Sushi’s pseudonymous founder Chef Nomi sold his share of LP tokens Saturday for 37,400 ether (ETH), worth approximately $13 million, in what David Hoffman of Bankless called a “sin of betrayal.”

“When the anonymous founder market-dumps all his SUSHI upon the rest of the community, it is a sin of the highest order because the person that was supposed to be a leader instead defected and took everyone else for chumps,” Hoffman wrote in a recent newsletter. 

“Again I did not intend to do any harm. I’m sorry if my decision did not follow what you expected,” Nomi tweeted.

Control of the project has since been transferred to FTX’s Sam Bankman-Fried, who plans to instantiate a multi-signature contract before  the project can be fully decentralized into the hands of SushiSwap LP token holders.

Market intel

Buying the dip
People are “buying the dip.” Bitcoin’s fall from $12,400 to $10,000 over the past three weeks has led to a 2% increase in the number of “accumulation addresses,” or addresses that have at least two incoming transfers and have never spent funds, according to data source Glassnode. The divergence between prices and accumulation addresses suggests that investors view the recent price drop as a typical bull market pullback and expect prices to rise once more. “Markets typically retrace one third or more in a bull market after local euphoria,” Su Zhu, CEO of Singapore-based Three Arrows Capital said, suggesting prices could drop to as low as $8,800 and still be a “healthy target.”

Bitcoin options
Bitcoin’s options traders are seemingly bullish in the long term but bearish for now. According to data source Skew, the six-month put-call skew, which measures the value of puts, or bearish bets, relative to that of calls, bullish bets, is currently seen at -10%. This negative number indicates that call options expiring six months from now are drawing higher prices or demand than puts. However, the one-month skew has crossed above zero, a sign of investors adding put options to position for a deeper short-term price decline, CoinDesk markets reporter Omkar Godbole reports. Meanwhile, new data shows crypto derivative volumes rose 54% to more than $710 billion in August, surpassing a previous all-time high of $602 billion monthly volumes reported in May.

Tech pod

Gas tokens
Ethereum developers are weighing ditching a smart contract feature that offers rebates amid a period of climbing Ethereum gas fees. At stake are gas tokens, a way to essentially “tokenize” gas by allowing Ethereum users to buy up transaction fees when they are low and then spend them when the fee price rises. Developer Alexey Akhunov proposed last June to get rid of these gas tokens, which made up 1.5% to 2% of Ethereum transactions over the summer. While the matter is still under discussion, some developers worry tokenized gas could one day act as a “price floor” for transaction fees and keep them permanently high, CoinDesk’s Will Foxley reports.

Op-ed

Volatility & risk
In the latest Crypto Long & Short newsletter, CoinDesk’s Head of Research Noelle Acheson looks at the relationship between volatility and risk, and why the two metrics are erroneously conflated. Often crypto’s volatility is seen as a barrier to entry, as Fidelity Digital Assets found in a recent survey. Yet, high volatility is not the same as risk. “Volatility is a metric, a number, a measurement. Risk is an ambiguous concept,” she writes. “If we equate volatility with risk, then we are implying that we can measure risk. We can’t. Risk is based on the unknown. Bad things can happen from any direction, at any time, at any speed, in an infinite array of forms and configurations.

Podcast corner

Eth 2.0 staking
Ethereum 2.0 is coming, eventually. But its latest, and largest, testnet is live today. Speaking with Paul Hauner, the lead developer of the Ethereum 2.0 Lighthouse client, and Tim Ogilvie, co-founder and CEO of Staked, CoinDesk’s Christine Kim breaks down the three things everyone should know before staking on Eth 2.0. 

Who won #CryptoTwitter? Related Stories

• Blockchain Bites: Tether’s Dispute, Buterin’s Fix and 3 Reasons for Bitcoin’s Sell-Off
• Money Reimagined: Defanging FAANG

Crypto lending platform Cred has joined Visa’s Fintech Fast Track Program to speed up payments and borrowing, Cred said Tuesday. 

• According to the statement, entry into the fast track program will allow Cred to “more easily leverage the reach, capabilities and security that Visa offers.” 
• By integrating its services with Visa, Cred can send interest payments directly to customer bank accounts in Visa’s network as well as issue crypto credit cards that will let customers access a line of credit without having to liquidate their crypto assets. 
• The Visa Fintech Fast Track Program, launched in the U.S. in July 2019, works as a vehicle for innovative fintech startups to leverage Visa’s vast network, resources and services to scale quickly. 
• In April 2020, Visa added shopping app Fold to its fast track program to issue a card that offered bitcoin rewards instead of points. 
• Since then, two bitcoin lightning startups Strike and LastBit also joined the program.

See also: Visa Blog Post Hints at Future Digital Currency Projects

Related Stories

• Starling Bank Co-Founder’s New UK-Licensed App Adds P2P Crypto Payments
• Pornhub Adds Bitcoin and Litecoin Payments for Premium Content
• Signature Bank Gave Dozens More PPP Loans to Crypto Firms Than Previously Reported
• Another Bitcoin Lightning Startup Is Working With Visa to ‘Fast Track’ Card Payments

Diginex, the Hong Kong-based company behind the newly launched EQUOS.io crypto exchange, has raised $20 million ahead of an anticipated Nasdaq listing later this month.

• The funding was raised by way of a privately placed convertible note with institutions and family offices in Europe and Asia, according to a press statement.
• EQUOS.io is expected to be the first publicly traded cryptocurrency exchange in the U.S.
• “Importantly, [the funding round] will help us meet certain listing requirements, paving the way for a successful business combination with 8i on Nasdaq in late September,” Diginex CEO Richard Byworth said in a statement.
• 8i Enterprises is a special-purpose acquisition company (SPAC). SPACs are the backdoor IPO vehicles that are currently in vogue for tech companies going public.

Read more: A Crypto Derivatives Exchange Is Getting a Nasdaq Listing in Q3

Related Stories

• European Crypto Exchange Falls Victim to $1.6M Hack
• Fireblocks, X-Margin Partner to Offer Institutions Cross Margin Trading in Crypto Derivatives
• Bithumb Exchange’s Offices Raided Again by Korean Authorities: Report
• Bitfinex Invests in Derivatives Exchange Built With Bitcoin’s Lightning Network

Multi-asset brokerage platform eToro has begun a new initiative that uses yield farming to hand out free crypto-backed stablecoins, apparently in a bid to promote financial inclusion.

• Called GoodDollar, the project will create and issue a stablecoin ($G) that can be distributed daily to registered users as a form of universal basic income (UBI).
• At launch, each $G token will be backed by dai (DAI) stablecoins, although the plan is to diversify collateral so that each stablecoin is backed by a basket of cryptocurrencies.
• The UBI model is sustained by supporters who deposit underlying assets onto the platform and then yield farm on supported decentralized finance (DeFi) protocols, like Compound or Aave.
• Some of the accrued interest is then handed back to supporters, with the rest used as collateral for new $G tokens that are distributed each day.
• GoodDollar is a non-profit funded by donations from eToro. An app and wallet have been released alongside the announcement on Tuesday.
• Per the announcement, GoodDollar says hundreds of new wallets have been created in countries like South Africa and Nigeria, as well as Venezuela.
• An eToro spokesperson told CoinDesk that “over 100,000 G$ have been distributed to over 250 users” during the course of a two-week trial.

Read more: Retail Investors Aren’t Interested in Crypto Derivatives, Says eToro Executive

Related Stories

• First Mover: SushiSwap’s Billion-Dollar ‘Rug Pull’ Is Thriller to Crypto Geeks
• DeFi Is Hot but Retail Interest Nowhere Close to ICO Frenzy
• Binance Unveils New Product for ‘Yield Farming’ Crypto Assets
• Fishy Business: What Happened to $1.2B DeFi Protocol SushiSwap Over the Weekend

A small exchange in Slovakia has disclosed that hackers managed to break into its hot wallets and make off with approximately $1.6 million in various cryptocurrencies.

• Eterbase announced on its Telegram channel Tuesday that hot wallets for six of its listed cryptocurrencies had been compromised.
• On Monday night, hackers stole bitcoin, ether, XRP, tezos, algorand and TRON, transferring the funds into public wallets that have since been emptied.
• At current prices, the amount stolen is worth just under $1.6 million.
• Eterbase shared the wallet addresses on the firm’s Telegram channel, but has withheld further details until its own investigation into the attack is complete.
• Based in Bratislava, Slovakia, Eterbase lists euro trading pairs against a series of conventional and DeFI-related digital assets.
• It’s been averaging around $3 million in daily trading volume, according to CoinGecko.
• The exchange has contacted the authorities and has suspended trading and European Union bank withdrawals until Sept. 10.
• CoinDesk asked Eterbase whether it would reimburse users funds affected in the hack, but received no immediate response.

See also: Crypto Firm Hacked for $1.4M Admits It Will Struggle to Reimburse Users

Related Stories

• Diginex Raises $20M Ahead of SPAC Listing on Nasdaq
• Fireblocks, X-Margin Partner to Offer Institutions Cross Margin Trading in Crypto Derivatives
• European Crypto Tax Companies Announce Merger to Power US Expansion
• Bithumb Exchange’s Offices Raided Again by Korean Authorities: Report

Developing countries are driving retail crypto adoption, and Ukraine is leading the way, according to a new report by blockchain analytics firm Chainalysis.

Ukraine, Russia and Venezuela are the top three countries for cryptocurrency adoption, Chainalysis said in its Global Cryptocurrency Adoption Index, published Tuesday as a part of the firm’s upcoming report on global trends in crypto usage.

The U.S. and China are still delivering the largest transaction volumes, but putting aside the largest “whale” crypto holders, Ukrainians, Russians and Venezuelans are the most active retail users of digital currencies, according to Chainalysis’ ranking. They are followed by China, Kenya and the U.S.

Related: Crypto Firm Bitsonar Had Signs of a ‘Deliberate Fraud’, Ex-Employee Claims in FBI Report

Chainalysis measured crypto adoption using on-chain cryptocurrency value received by a country, on-chain value transferred, number of on-chain cryptocurrency deposits and peer-to-peer exchange trade volume. The data was weighted by the purchasing power parity per capita and number of internet users in each country.

The list of “winners” might look surprising, but only at first glance, said Kim Grauer, head of research at Chainalysis. For example, Russia has a history of using e-payment services, Grauer explained. People are used to digital payments, so the transition to cryptocurrencies might be a bit more seamless.

Ukraine, for its part, has “a really tech-native population” she added, and both countries also have “a really industrious startup environment.” There is also more cybercrime activity in Eastern Europe than in other regions, which might add to the busy crypto market.

As CoinDesk previously reported, Ukraine is a hotbed for cryptocurrency adoption, with a tech-savvy population and crypto-curious government that is currently working on future regulations for the industry in cooperation with the local blockchain community.

Related: Russia’s Latest Draft Bill Would Still Largely Ban Crypto, Stifle Miners

The patterns for crypto usage varies from country to country. Ukraine and Russia are actively using crypto to send money for business-to-business and cross-border transactions, avoiding cumbersome banking regulations. In Venezuela, people use crypto more for savings and peer-to-peer trading.

“People in Venezuela don’t necessarily want to go to cryptocurrencies because it’s interesting or a cool thing to do, but because they are looking for a stable source of value,” Grauer said. She added that there is also an active remittance market between Venezuela and Argentina.

In Russia, Venezuela and Ukraine, crypto adoption is driven more by retail investors, while in China and the U.S., the crypto whales are the biggest drivers of growth, Grauer said.

“Looking at the share of the transfers greater than $100,000, we noticed that over the past year the share of the overall activity in North America that is professional has been growing,” she said.

Ukraine’s crypto game

Out of the three nations, Ukraine may be the most surprising leader because the country largely flies under the radar of the global crypto community. Located in Eastern Europe and with a population of 42 million, the nation has both an unstable economy and tech-savvy citizens, which apparently is a good recipe for crypto use.

Ukraine’s Ministry of Digital Transformation said there are several reasons for the popularity of crypto among Ukrainians: a big blockchain developer community and tech-savvy population in general, cumbersome regulations for export and import transactions and the absence of the stock market in the country. All of this is encouraging people to try out digital assets, the Ministry said in a blog post.

Read more: Why Ukraine Is Ripe for Cryptocurrency Adoption

Michael Chobanyan, founder of Ukraine’s first crypto exchange, Kuna, said small businesses, which are using crypto to circumnavigate foreign currency regulations, might be turning around up to $5 million worth of crypto every week, according to a loose estimate. They mostly pay for imports coming from Turkey and are using tether (USDT) in 90% of transactions, he added. 

Retail drive

There are many retail crypto investors in Ukraine, too, Chobanyan believes. Kuna sees about $800,000 worth of retail crypto trades daily, he said. And this is just a fraction of overall retail volume, given the popularity of exchanges like Binance and EXMO, as well as numerous cash over the counter dealers in the country. 

Retail investors are interested in crypto as there are not many other options for savings and passive income in Ukraine. The economy is small and there is no national stock market. Banks often fail and investing in real estate is too expensive for most people, Chobanyan said. 

Crypto, on the other hand, has a low barrier to entry, easier compliance requirements and is safer than just holding onto cash. 

Alex Bornyakov, the deputy minister for digital transformation of Ukraine, believes that individuals, not businesses, are the most active crypto users in the country. 

“They are using cryptocurrencies for small investments and trading,” he explained. 

This is an educated guess so far, he admits, as there is no official statistics for cryptocurrency usage in the country. 

Read more: Chainalysis Report Shows Healthy Crypto Usage in Venezuela

Crypto, like U.S. dollars, is a hedge against the volatility of the national currency, Ukrainian hryvnia, and against the general instability of Ukraine’s political and economic situation, said Ukrainian Bitcoin Core developer Hennadii Stepanov, going by hebasto.

“Our situation is similar to that in Iran and Venezuela,” he said, adding: “Unlike gold, bitcoin is available for everyone.”

Adoption is limited, however, said Gleb Naumenko, another Bitcoin Core dev with Ukrainian origins. 

“Many of my friends know somebody who invested [in crypto]. I see huge interest, but the technology is still lagging behind. It’s hard to use it, and that scares people away,” Naumenko said. 

Pandemic activation

According to Binance’s head for Russia and Ukraine, Gleb Kostarev, although Ukraine is not the biggest volume driver for Binance, it’s nonetheless one of the key markets for the exchange. The firm is constantly working on new fiat on-ramps for the Ukrainian hryvnia and is actively cooperating with the Ukrainian government on future crypto regulation, Kostarev added.

For both Ukraine and Russia, the COVID-19 pandemic became a driver for adoption, as the pandemic hit both economies hard, Kostarev said. Isolated at home, people turned to crypto as a new source of income.

“The macroeconomic situation in Ukraine remains complicated, and during the coronavirus pandemic it got even worse. The government is working on new ways to stimulate the economy, while the young population has to search for new sources of income. This is one of the key reasons for Ukraine’s interest for crypto,” Kostarev said.  

Read more: Binance Credited With Helping Take Down Ukraine Crypto Laundering Group

Kyrylo Chykhradze, product director for the analysis platform Crystal Blockchain, said Ukraine’s registered crypto businesses have processed only $300 million in bitcoin since 2015, a fraction of the $150 billion that passed through U.S. bitcoin markets over the same period.

However, the low numbers can be partly explained by the fact that Ukraine-based and Ukraine-oriented crypto enterprises often chose other jurisdictions to register, so officially they are not in Ukraine. 

“There is still a lack of legal grounding as of yet on the digital asset front, which has resulted in local crypto businesses targeting other locations (such as the U.K. or Estonia) to operate from,” Chykhradze said. He added that the efforts to put crypto businesses into the legal field by the government can change the situation in the future.

Tricky data

Quantifying crypto activity by country gets tricky, as individual bitcoin wallets aren’t marked with geographical locations. Chainalysis admits that geographic data is hard to get right if you only look at on-chain transactions, so the firm requested data directly from the global P2P trading platforms, namely LocalBitcoins and Paxful, and talked to experts on the ground, Grauer said.

To see activity in particular countries, Chainalysis mostly looked at web traffic on the crypto trading, merchant, gambling and other services using SimilarWeb, Grauer explained. If that data was not available, transaction data was analyzed using time zones, most popular fiat currency pairs, language options used and the location of the headquarters of the services. 

Read more: Whistleblower Kidnapped in Ukraine After Accusing Crypto Firm of Exit Scam

Chainalysis also weights the numbers against each country’s purchasing power parity so that the poorer countries with more volatile currencies still can rank high if they are active in retail crypto trades (transactions worth less than $10,000). This means the highest-ranking countries are not necessarily the ones with the largest crypto volumes. Rather, they are the countries where people put a larger share of their assets into cryptocurrency.

“Countries have different populations and different GDP, so if you’re just doing index without weights it’s all skewed towards China and the U.S.” Grauer said.  

A country’s position in the ranking is not defined by any single factor, Grauer said.

“Ukraine and Russia are not number one in any of the submetrics but they are in the top 19 by the [crypto] value received and the number of crypto deposits, and they perform well across the board,” she said.

Related Stories

• For DeFi to Grow, CeFi Must Embrace It
• Russia’s New Blockchain Voting System Isn’t Ready, but It’ll Be Used This Month Anyway

Digital asset infrastructure provider Fireblocks has teamed with X-Margin, a distributed clearing and settlement platform, in a bid to boost institutional offerings in the crypto derivatives market.

• Announced Tuesday, the firms will leverage privacy-enhancing zero-knowledge proof technology to enable institutional trading firms to cross-margin and bilaterally trade derivatives “without compromising security,” X-Margin CEO Darshan Vaidya said.
• Trading bilateral derivatives using X-Margin’s system allows investors to benefit from trading at different venues from one pool of collateral.
• This can potentially drive down costs by removing the need for a central middleman to verify positions.
• It would further reduce the counterparty risk associated by holding funds on multiple exchanges to service derivatives contracts.
• Fireblocks said the new partnership would enable the trading of digital asset derivatives using any form of collateral.
• According to the announcement, JST Capital, global crypto firm XBTO and digital asset investment company LedgerPrime became the first customers to successfully trade using X-Margin’s distributed clearing network.
• Fireblocks recently joined forces with blockchain analytics firm Elliptic to automate anti-money laundering compliance for their shared institutional clients.
• In 2019, the firm raised $16 million in Series A funding from investors including Cyberstarts, Tenaya Capital, and Eight Roads, the proprietary investment arm of Fidelity International.

See also: Fireblocks Claims Exchange Program Enables Zero-Confirmation Crypto Deposits

Related Stories

• European Crypto Tax Companies Announce Merger to Power US Expansion
• Bithumb Exchange’s Offices Raided Again by Korean Authorities: Report
• Bitfinex Invests in Derivatives Exchange Built With Bitcoin’s Lightning Network
• August’s Bitcoin Rally Led to Record Crypto Derivatives Volumes: Report

You’re reading First Mover, CoinDesk’s daily markets newsletter. Assembled by the CoinDesk Markets Team and edited by Bradley Keoun, 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.

Price Point

Bitcoin was down early Tuesday, barely holding above the important psychological threshold of $10,000. 

Prices for the cryptocurrency, up 40% year to date, have held above $10,000 for more than six weeks. The digital-asset firm Diginex wrote in a newsletter post that “prices will need to regain $10,550 to settle the nerves of traders.” 

Related: Bitcoin Options Suggest Investors Hedging but Still Long-Term Bullish

On Wall Street, U.S. stock futures were lower, pulled by tech shares as traders returned from a long holiday weekend. The dollar strengthened in foreign-exchange markets and Treasury bond yields fell, indicating a reduced risk appetite, though gold was off. The British pound slipped on speculation that a “no-deal” Brexit looms.  

Market Moves

In a 2020 during which the fast-growing arena of decentralized finance, or DeFi, has produced a seemingly unending series of jaw-dropping, billion-dollar twists, the past few days’ saga of the market-making protocol SushiSwap is drawing comparisons to a thrilling caper flick.

The Bankless newsletter called it “the SushiSwap rug pull.” It was “one of “the most dramatic moments in DeFi this year,” according to The Defiant newsletter. Jay Hao, CEO of the cryptocurrency exchange OKEx, called it “one of those action-packed high-drama movies the likes of which crypto hasn’t witnessed in recent times.” 

Of course, all this is from the perspective of crypto geekdom, and it’s really just the latest tech-gone-wild iteration of the reliable human themes of invention, fear, greed, mania and panic. 

Related: DeFi Is Hot but Retail Interest Nowhere Close to ICO Frenzy

As reported Monday by CoinDesk’s Will Foxley, a pseudonymous developer who goes by “Chef Nomi” launched the SushiSwap protocol in late August, and it was quickly cast as a “vampire protocol” because its inherent design intended to siphon away liquidity from a competing trading platform, Uniswap.   

The project quickly attracted more than $1 billion of collateral with a technique known as “zombie mining,” The market value of the associated SUSHI tokens surged roughly 500-fold in a matter of days to more than $300 million.

And then on Saturday, SUSHI investors learned that Chef Nomi had unexpectedly cashed out of tokens in exchange for 37,400 ether (ETH) worth about $13 million. SUSHI prices crashed before recovering somewhat after Sam Bankman-Fried, CEO of the cryptocurrency exchange FTX, reportedly took control of the project. 

Bankman-Fried tweeted early Monday that “the great Sushi experiment” of migrating markets over from Uniswap will take place “one at a time, starting in 48 hours,” potentially setting up something of a sequel.

“If you’re in it for the wild gains, if you’re chasing clearly unsustainable percentage leaps, you have to be able to stomach the losses as well,” Hao wrote.

Read More: Fishy Business: What Happened to $1.2B DeFi Protocol SushiSwap Over the Weekend

The episode is one of several prompting comparisons of DeFi to the 2017-18 initial coin offering (ICO) bubble, when little-known and barely-tested developers took advantage of surging prices for bitcoin and other cryptocurrencies to raise the equivalent of at least $12 billion.    

According to the website DeFi Market Cap, decentralized-finance applications, mainly focused on lending and trading businesses, now have a combined market value of about $14 billion.  

One key difference so far is DeFi does not appear to have penetrated the consciousness of individual investors, as happened during ICO boom. Amateur traders also have flocked recently in the stock market, embodied in the success of platforms like Robinhood.  

CoinDesk’s Omkar Godbole reported Tuesday that Google searches on the keyword “DeFi” register nowhere near the scale of “ICO” searches a couple years ago. 

“DeFi is an incrementally accretive and sustainable trend while ICOs were not,” according to Su Zhu, CEO of the Singapore-based fund management firm Three Arrows Capital. 

The SUSHI saga? Sustainable? Just don’t tell the Robinhood crowd about it.

Read More: DeFi Is Hot but Retail Interest Nowhere Close to ICO Frenzy

Bitcoin Watch

Bitcoin’s recent drop from $12,400 to $10,000 has revived interest in short-term put options or bearish bets. 

• The one-month put-call skew has crossed above zero, a sign of put options drawing higher demand than call options. 
• In other words, investors are adding bets to position for a deeper price pullback, which could be seen if risk aversion grips traditional markets.
• “Investors should be cognizant of movements in the stock market as a supplement to on-chain fundamentals in determining the expected behavior of BTC and crypto markets in general,” according to the blockchain intelligence firm Glassnode. 
• The six-month skew continues to hover below zero. It shows investors remain confident about the cryptocurrency’s long-term price prospects.

Read More: Bitcoin Options Suggest Investors Hedging but Still Long-Term Bullish

– Omkar Godbole

Token Watch

Ether (ETH): Until next phase of Ethereum 2.0 development, “one-way-trip ” means traders can transfer ether onto the new network but can’t transfer it back out. 

Bitcoin (BTC): LedgerX announces launch of bitcoin mini futures representing 1/100th bitcoin, listing two months and two quarters, fully collateralized with cash or bitcoin and physically settled. 

Chainlink (LINK): At least nine node operators suffered attack Sunday, draining about 700 ETH from wallets, The Block reports. 

Wrapped Bitcoin (wBTC): One trading firm, Alameda Research, associated with the FTX cryptocurrency exchange, has accumulated more than 14,000 of wrapped bitcoin, roughly 70% of the supply minted in August. 

What’s Hot

Bitumb exchange’s offices raided again by Korean authorities, newspaper reports (CoinDesk)

Bitfinex invests in derivatives platform LN Markets, based on Lightning Network (CoinDesk)

Binance unveils new product for ‘yield farming’ crypto assets (CoinDesk)

August bitcoin rally pushed crypto derivative volumes up 54% to record of more than $710 million, report shows. (CoinDesk)

Crypto-to-fiat convertibility holds key to next leap in payments (Hacker Noon)

Using your next stimulus check to buy bitcoin could prove disastrous (Forbes)

TradeBlock analysis shows fees on decentralized exchanges only competitive with centralized exchanges on large transactions (Trade Block):

Analogs The latest on the economy and traditional finance

Shares of Japan’s SoftBank tumble after $4B “Nasdaq whale” mystery revealed (Financial Times)

Gold-price rally stretches limits of insurance against vault heists (Bloomberg)

Lawmakers tackle spending deadline, look to revive coronavirus aid talks (WSJ)

Former Fed Governor Warsh expects U.S. central bank to “expand significantly the scale, scope and duration of its asset purchases” if economy improves (WSJ)

As Chinese tourists stay home amid coronavirus, demand dries up for currency to travel abroad, helping to strengthen yuan (Pantheon):

Tweet of the Day Related Stories

• Bitcoin Should Be Regulated Like Stocks in India, Says Think Tank Founder
• Ethereum Developers Weigh Gas Rule Change to Ease Fee Pressure

Two of Europe’s largest crypto tax reporting firms are to merge in an effort to turbocharge a planned expansion into the U.S. market.

• Austria-based Blockpit and Germany’s Crypto Tax announced the merger Tuesday, saying they would start offering a range of compliance and tax services, all under one roof.
• Crypto Tax provides tax reporting frameworks, for crypto and non-crypto assets such as traditional securities, that can be adjusted to different countries; Blockpit offers tax reporting and know-your-transaction (KYT) compliance tools.
• Klaus Himmer, co-founder and managing director of CryptoTax, and Florian Wimmer, founder, and CEO of Blockpit, told CoinDesk the merger will make them a full-scale regtech company.
• The new company will trade under the “Blockpit” brand, but will retain the “Crypto Tax” name for the taxation services.
• Structured by Austrian M&A specialist Venionaire, Wimmer said the merger was close to a 50:50 deal.
• Blockpit’s existing offices in Linz will become the new headquarters for the newly merged company, with Crypto Tax’s offices in Munich to be retained.
• A tax solution had already been developed by Crypto Tax but has yet to be rolled out.
• The new company, already prevalent in the German-speaking world, will now turn its attention to rolling out specialized regtech products in the much-larger U.S. market.
• The new Blockpit plans to raise €1.6 million (~$1.9 million) from both companies’ existing investors and get the ball rolling on an extended Series C to fund the U.S. move.
• A prospective expansion to other English-speaking countries, as well as the Asian markets, is in the works for 2021.
• Wimmer said the merger has likely saved both companies a year or so building out products the other company already had.

Edit (12:57 UTC, Sept. 8, 2020): Clarifies details of the business offerings of Blockpit.

See also: Swiss Canton Zug to Accept Taxes in Bitcoin, Ether From Next Year

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South Korean officials are said to have raided the offices of cryptocurrency exchange Bithumb for a second time in a week.

• The Seoul Newspaper reported Tuesday that the Seoul Metropolitan Police Agency’s Intelligent Crime Investigation Unit had entered Bithumb’s Seoul headquarters and seized evidence relating to a fraud investigation.
• The raid was again linked to a $25 million token sale hosted on Bithumb and a proposed acquisition by a Singapore platform, BTHMB, that never materialized.
• Some investors have reportedly lost millions and Bithumb’s chairman, Lee Jung-hoon, has been accused of fraud and illicitly sending funds overseas.
• Bithumb, one of the largest exchanges in South Korea by trading volume, was raided for the first time last Wednesday.
• Authorities this time targeted the offices relating to Bithumb Holdings, the parent of Bithumb Korea, which operates the Bithumb exchange.
• “Everything is going fine,” Bithumb told CoinDesk when contacted for comment.

See also: South Korean Crypto Exchange Coinbit Seized Over Allegations of Massive Wash Trading

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Bitcoin’s options market retains long-term bullish bias despite the recent price pullback.

• According to data source Skew, the six-month put-call skew, which measures the value of puts, or bearish bets, relative to that of calls, bullish bets, is currently seen at -10%.
• The negative number indicates the call options expiring six months from now are drawing higher prices or demand than puts.

• The six-month skew shows bitcoin’s pullback from $12,400 to $10,000 seen in the past three weeks has failed to weaken investor confidence in the cryptocurrency’s long-term prospects.
• However, the one-month skew has crossed above zero, a sign of investors adding put options to position for a deeper short-term price decline.
• Bitcoin has developed a sensitivity to traditional markets over the past six months.
• Hence, a notable drop in the global equity markets could yield a stronger pullback in bitcoin, as noted by blockchain intelligence firm Glassnode.
• Major European stocks are nursing losses on Tuesday, with U.S. equity index futures pointing to a risk aversion on Wall Street. Futures tied to the Nasdaq index are down over 200 points at press time.
• Bitcoin is currently trading near $10,030, having faced rejection above $10,400 during the Asian trading hours.
• On a month-to-date basis, the cryptocurrency is down over 13%.
• Still, sellers have failed to establish a foothold below $10,000 in four of the past five trading days.
• “Overall local daily fluctuations look typical to non-directional movement. Lots of liquidity hunting, long-wicked [daily] candles prints the overall idea of a bottom-forming process,” said Adrian Zdunczyk, a chartered market technician and CEO of trading community The BIRB Nest.

Also read: Investors Buying Bitcoin Amid Price Slump to Near $10K, Data Shows

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