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| The biggest crypto news and ideas of the day Jan. 27, 2022 If you were forwarded this newsletter and would like to receive it, sign up here. Sponsored by Welcome to The Node.
In today’s newsletter: Diem sells its tech for $200 million. SEC probes Voyager Digital, Gemini Trust and Celsius Network. And what two dozen major crypto exchanges do with your data.
Questions? Feedback? We’d love to hear from you – simply reply to this email.
Today’s must-reads Top Shelf PRIVACY POLICIES: CoinDesk’s Anna Baydakova reviewed privacy policies from two dozen major crypto exchanges, including Coinbase and Binance, to figure out how they use your data. Meanwhile, Trezor is adopting an automated way to meet FATF’s “travel rule” and Swiss regulations. The hardware company is applying the solution to private crypto wallets.
DIEM’S DEAD? The Diem Association, the Meta Platforms-led enterprise that was looking to issue a stablecoin, is reportedly selling its technology to Silvergate Capital for $200 million. This comes after two years of regulatory scrutiny and public antagonism reduced the novel stablecoin concept originally called libra to a staid version with no guaranteed launch. Project co-creator Christian Catalini joined Chainlink Labs as a technical adviser.
SEC WAFFLES: The U.S. Securities and Exchange Commission (SEC) is probing Voyager Digital, Gemini Trust and Celsius Network as part of a wider investigation into crypto companies that pay interest on virtual token deposits. The agency, as its name may imply, wonders whether paying interest is a securities matter, but has not accused these firms of wrongdoing. Meanwhile, the SEC has rejected Fidelity’s spot bitcoin exchange-traded fund (ETF) application and delayed answering filings from Ark 21 Shares and Teucrium.
LATER ROUNDS: Apifiny Group, a digital asset trading network for institutional investors, will list on the Nasdaq likely in Q3 through a reverse merger with Abri SPAC I, a special purpose acquisition company. Meanwhile, custody firm Fireblocks raised a $550 million in a Series E round co-led by D1 Capital Partners and Spark Capital valuing the technology provider at over $8 billion. Finally, Matter Labs and BitDAO are backing a $200 million DAO that itself is investing in the Ethereum-based zkSync ecosystem.
THE METAVERSE: Warner Music Group is “entering the metaverse” with a theme park in The Sandbox. Ed Sheeran, Bruno Mars, Dua Lipa and Cardi B are a few of the artists mentioned in a press release that may perform “concerts and musical experiences.” Separately, The Sandbox is launching a $50 million incubator program in partnership with venture accelerator Brinc. The program will invest up to $250,000 in 30–40 metaverse startups each year over a three-year period. Finally, Coinbase is close to listing Solana ecosystem tokens – sort of like Ethereum’s ERC-20s – as part of its effort to sell “every” allowable crypto.
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Overheard on CoinDesk TV... Sound Bites “It makes a lot of sense for the city of Rio de Janeiro to become a tech hub, and also work with blockchain technologies."
–Rio de Janeiro Municipal Secretary for Economic Development Chicão Bulhões, on CoinDesk TV's "First Mover."
What others are writing... Off-Chain Signals Crypto Hedge Fund Launching Market-Neutral Strategy to Meet Investor Demand, Sources Say (Blockworks) No, quantum computers won’t hack Bitcoin by 2022 (Protos) OpenSea is trying to save people's NFTs but pesky frontrunners are poaching them (The Block) 'Snow Job': The Plot to Hand the Crypto Industry to the Big Banks (Decrypt) It’s Hard to Tell When the Crypto Bubble Will Burst, or If There Is One (NYT) Crypto Kings Are the Real-Estate Industry’s Newest Whales (WSJ) Putin Says Russia Has a “Competitive Advantage” in Crypto Mining (Yahoo)
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Putting the news in perspective The Takeaway Why Governments Are Investing in Crypto Public institutions of all kinds, including government treasuries, are steadily warming to bitcoin and cryptocurrency. The volatile new asset class presents an opportunity for governments, which are often underfunded, to reap massive rewards. The risks are self-evident, although some in the crypto industry might say it’s riskier for governments not to get involved.
Earlier this month, Rio de Janeiro, one of Brazil’s largest cities, announced its intentions to allocate 1% of its municipal treasury to crypto. It will also give a discount to those taxpayers who pay their dues in bitcoin and rework its tax code to attract foreign, crypto-rich, individuals and companies.
“It makes a lot of sense for the city of Rio de Janeiro to become a tech hub, and also work with blockchain technologies,” Municipal Secretary for Economic Development Chicão Bulhões told CoinDesk TV’s “First Mover” on Thursday.
Bulhões also noted that the city’s burgeoning blockchain industry, which includes stablecoin issuer Transfero and crypto fund Hashdex, is perhaps one of the largest in Latin America.
“It's the future that is already here. So we want to be a part of it,” he said.
You might think Copacabana and Ipanema beaches would be enough of a draw, but several cities and governments are following a similar playbook to Rio’s to compete for this wave of capital.
Miami Mayor Francis Suarez, who attended the “innovation week” where Rio announced its plans, was a first mover. He recently took a paycheck in bitcoin, floated tax breaks, promised Miami would buy bitcoin and set up a “MiamiCoin,” where anyone can mine on the Stacks blockchain to reap rewards for both Miami’s semiofficial wallet and themselves.
There are others, too. New York City Mayor Eric Adams wants to become “mayor of all the bitcoins.” Scott Conger, the mayor of Jackson, Tenn., is trying to find a way to mine bitcoin in a disused wing of city hall. Mark Wheeler, chief information officer of Philadelphia, is extending the city’s namesake brotherly love to the coins.
Reshma Patel recently ran a campaign to become the next comptroller of New York City with a thought-out blockchain plan that included investing the city’s pension fund in “major cryptocurrencies.”
“Bitcoin has a set, finite supply, which gives investors a hedge against inflation – which could be on the rise if further stimulus actions are needed. Fears of inflation today, and through the future, are valid, and that is why some of the world’s most forward-thinking companies, like Tesla and Square, have invested a portion of their total cash reserve in bitcoin,” Patel wrote.
Patel didn’t win her bid for office, but her thinking is widespread. Crypto investors steeped in the community thinking of crypto, look at all this and say, “It’s game theory.” All governments, just as all people, will one day have to own crypto if it becomes widespread – and it will – and those who move quickly now will benefit the most. It’s the money of the future on sale today.
One notable example of this idea came from maven investor Cathie Wood’s Ark Invest, which predicted the price of bitcoin could reach $1 million by decade’s end, with “nation-state “adoption” being a prime mover behind the increase.
That is the “hodlers” mindset. Bitcoin, admittedly, isn’t great to use today. It’s volatile, expensive and – most importantly – deflationary, meaning if you sell or trade it for anything today, you might regret it later when it’s much more expensive. And because bitcoin is capped at a supply of 21 million coins, if demand goes up, so will prices. Economics 101.
It’s for that reason that MicroStrategy CEO Michael Saylor, the uber-holder, is careful not to call bitcoin a “currency,” but a rapidly appreciating digital asset. MicroStrategy made waves in 2020 when it became the first publicly traded company to allocate a portion of its assets to bitcoin.
Several, but not many, companies have followed suit. As have a few governments, like El Salvador’s. The country has made bitcoin a legal tender, and its president executes late-night bitcoin buys using public funds.
There is certainly an argument that cryptocurrencies – especially bitcoin, which is the first, most decentralized and so far most resilient coin – will increasingly appear more attractive for public institutions to invest in. It’s where the smart money is going. Gold hasn’t held up its promise to be an inflation hedge.
Read more: Bitcoin Is 'Armageddon Insurance'?
Ultimately, as an advocate for democracy, I want all governments to do what their citizens vote for – whether that’s buying bitcoin or banning it. But it’s important to remember that crypto still comes with risks, even if you can rationalize your investment, or even your losses.
If cities start plowing into crypto, it will become important to note when (if ever) governments offload their assets and where they appropriate the funds.
Rio’s tidy 1% investment is prudent, a way to potentially reap a windfall without betting the house.
“We're talking about Web 3.0, here, we're talking about a probably new revolution in the way people pay their bills or pay their taxes or even their investments,” Bulhões said. “It's new for everyone. It's new for us.”
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