Dispatch #5: Are Regulators Trying to Destroy Crypto Derivatives?

In this patch of your weekly Dispatch:

• Regulators on both sides of the pond are going after crypto derivatives
• Jack Dorsey’s Square buys $50M worth of Bitcoin
• The best U.S. universities for blockchain, ranked by CoinDesk

The Big Idea

Are Regulators Trying to Destroy Crypto Derivatives?

You’d be forgiven for thinking that governments are trying to regulate crypto derivatives out of existence.

Last week, both the U.S. Department of Justice and the Commodities Futures Trade Commission came after BitMEX with a slew of civil complaints, as well as criminal complaints against the founders. Crypto lawyers agreed that actions such as the arrest of the BitMEX co-founder and CTO represented a clear escalation in the regulatory battle.

Then earlier this week, the U.K.’s Financial Conduct Authority (FCA) issued an outright ban on derivatives for retail traders, claiming that they were too complex, impossible to value, and that the ban would save those investors something to the tune of £53M annually.

The reactions of Crypto Twitter veered somewhere between indignation at the hypocrisy and a claim that it was ultimately a non-event.

It is hard not to feel like blanket bans like this are overly heavy-handed.

The Latest In…

Bitcoin

When publicly-traded MicroStrategy moved $425M of its cash reserves into Bitcoin last month, people were thrilled, but wondered: what company will be next? This week, that question was answered. Jack Dorsey’s Square has purchased 4,709 Bitcoin, worth $50M and representing 1% of their treasury. The company’s statement suggested that the move was both an extension of their mission of economic empowerment as well as fiduciary responsibility concerning an asset they believe will only increase in prominence as a global currency. Hard not to get amped on this one.

The Latest In…

Institutions

For some time now, the number of services tailored specifically to miners’ needs has kept expanding. Nexo’s sizeable miner user base has, for one, long benefited from the Instant Crypto Credit Lines™ to cash in on newly minted BTC. Earlier in 2020, the company also started offering an insured option-based zero-liquidation loan that gives miners that additional safety net.

Now, Galaxy Digital is getting in on the mining game. Specifically, it wants to provide a full suite of financial services for Bitcoin mining companies - including financing, capital markets advisory, and liquidity. Good brand moving into a big space = big win.

The Latest In…

Traditional Markets

Here’s an interesting tidbit. In a webinar earlier in the week, SEC Chairman Jay Clayton said that he could see a future in which all stocks were tokenized. He also said that his door was wide open for anyone who could “tokenize the ETF product in a way that adds efficiency.”

The Latest In…

DeFi

We’ve been following the rapid growth of DeFi for some time now. Here’s the latest data nugget to get your little heart pounding: Uniswap saw more volume in September than Coinbase — and that was in a month when things were ostensibly cooling down! Uniswap’s total volume was $15.4B while Coinbase recorded $13.6B. What’s more, the DEX-to-CEX ratio jumped from 6.06% in August to 13.9% in September.

The Latest In…

Central Bank Digital Currencies

There’s always news in CBDC’s these days and this week is no different. South Korea is moving to a trial phase soon, but the big deal is China releasing some results from its three-city DC/EP test from April to August. 113,300 consumer digital wallets and 8,859 corporate digital wallets moving RMB 1.1B ($162M) across 3.1M transactions spanning 6,700 use cases. This thing is moving.

The Week’s Most Interesting Data Story

These Are the Best Blockchain Universities*

*At least according to CoinDesk, which has put together a pretty interesting methodology for ranking universities. Factoring in individual survey responses and employees at blockchain companies, the website evaluated 46 of the top U.S. colleges and universities in terms of their blockchain presence and leadership. They looked at four different umbrella categories (each with a slightly different weight): scholarly impact, campus blockchain offerings, employment and industry outcomes, and academic reputation. In the end, they gave the crown to MIT, with Cornell, UC Berkeley, Stanford, and Harvard rounding out the top five.

Hot Topics

What the Community Is Discussing

Let’s be clear: this tweet is bait. STILL, the question of just how decentralized a protocol is if part of the infrastructure isn’t decentralized is a good one to ask.

Anyone trying to tell you that Bitcoin and DeFi are enemies needs to wrap their head around this perspective.

One of the biggest macro conversations seems to be around stimulus: when, and how much of it?

Our Take

@AntoniNexo This Week

• Commenting on the blanket ban imposed by the U.K.’s Financial Conduct Authority (FCA) over the sale of crypto derivatives to retail users, Antoni noted: “At a time when Europe is making collective headway on digital asset regulation, the UK’s financial regulator has imposed an un-nuanced ban that fails to differentiate the legitimate derivatives platforms, which allow retail investors to hedge and diversify their portfolios, from the bad apples that tarnish the reputation of the entire space. Dialogue between regulators and the big players in digital finance is much needed – Nexo is ready for this conversation."
• Nexo became a member of the Swiss Finance and Technology Association to further expand its ecosystem – in Switzerland and globally.

What to Watch for Next Week:

• Will a stimulus deal come to fruition and juice the markets?
• Will altcoin and DeFi prices start to turn around?
• Will Bitcoin’s volatility keep decreasing?