There are also hot wallets. Cold wallets never interact with the internet, but more risk-tolerant crypto holders might keep assets in a software hot wallet loaded into their browsers, like MetaMask, for ease of access.
Both solutions have their pros and cons. Still, generating a seed phrase — the 12-word key that unlocks crypto kept inside associated addresses — is a menial task in both options.
Click a button to generate your seed phrase. Make sure to store a copy securely. Never give your seed phrase to anyone. Onto the next screen.
The boffins at US-based Web3 startup Keyp are working on a novelty solution that injects heady nostalgia into the impersonal process of generating a seed phrase.
Keyp’s Game Wallet is a GameBoy cartridge intended to double as a crypto cold wallet. Cold wallets are air-gapped, trusted devices which have never been connected to the internet — old GameBoys fit that description to a tee.
In January, Keyp CEO Joseph Schiarizzi debuted the project on Twitter, showcasing its early stages of development. Schiarizzi intends the Game Wallet to work like this:
Insert the cartridge into any compatible device to load a Pokemon-esque RPG game.
Complete quests (like finding some wax for an old fisherman) to hit key milestones.
Finish enough quests and you can talk to a cat to generate a secure seed phrase (because you should never share them with humans).
“It’s definitely inspired by Pokemon. I grew up playing Emerald, I probably have 1,000 hours in that,” Schiatizzi told Blockworks. “I think it’s a very good interface [for Web3], it’s easy for everyone to understand.”
How a GameBoy generates randomness
Computer science has difficulty with randomness. It’s practically impossible to reliably generate truly random numbers. This is an unsolved problem for cryptography, leading to all sorts of unique solutions to help make encryption more robust.
In computer science, random number generation often relies on formulas that produce sequences of seemingly random numbers. However, these algorithms are deterministic in nature — the same input will always produce the same output.
True randomness, on the other hand, is associated with inherently unpredictable processes. To achieve true randomness in the digital world, researchers have explored approaches like capturing physical phenomena to extract random bits; things like radioactive decay, atmospheric noise, and quantum processes.
Cloudflare’s novel lava lamp room, for example, films hot malleable goo to find secure cryptographic seeds for use in SSL encryption — which turns HTTP into HTTPS and keeps data transmission between clients and servers private.
The goo moves in random and mysterious ways, and the camera translates those movements into data inputs for key encryption.
In Keyp’s Game Wallet, the actions players perform during gameplay are the game’s analog to that mysterious goo. The idea is: more actions means more security, and the fluffy cat who dishes out the seed phrase won’t give you one until you’ve completed enough quests.
“You need a lot of randomness to generate a wallet securely. GameBoy hardware can’t generate that on its own, it’s not just strong enough. It has to be like a whole game with random inputs,” Schiatizzi said.
How players respond to different in-game events will be one of the primary sources of randomness to generate secure keys. In Game Wallet’s early demos, the game has been hashing actions at various checkpoints — hashing the last 500 things the user has done.
After adding them up, the program can spit out something cryptographically secure, Schiatizzi explained. “Otherwise there’s not enough randomness and there’s not enough memory on board for the GameBoy to do it itself.”
The company is building Game Wallet to support any BIP-39 seed phrase, which can be spun into Bitcoin and Ethereum wallets, or any blockchain that uses that standard. Users will have complete control over their seed phrases, so they can load them into MetaMask or Ledger, or any other compatible wallet.
Game Wallet itself will serve as a cold wallet — an offline-only device that generates and manages seed phrases and private keys. (Some modern third party GameBoy devices do have internet connectivity, though, alongside other ingenious solutions).
GameBoy cartridges don’t last forever
Game Wallet faces an existential threat: time.
Schiatizzi explained the lifespan of GameBoy cartridges depends on how they are built — specifically the memory. If the cartridge uses SRAM, it could last 10 to 15 years. DRAM might go for eight to 10 years before it breaks down the cartridge on account of its power consumption.
Another type could get power from the GameBoy itself, instead of a battery inside the cartridge, which could extend its lifespan to up to 25 years.
“But if we use memory that lasts much longer, it’s going to be really, really slow. You’re gonna have to sit there for three minutes while it generates every time you finish a quest,” Schiatizzi said. ”This is a really high priority for us, obviously, because it affects the security.”
Faster RAM could be offset by a notice appearing to warn users that the cartridge would need to be replaced sometime in the next few years was one solution. “If it dies, then you lose your safe, which is obviously not acceptable for a hardware wallet.”
Data storage gurus would prescribe the 3-2-1 strategy to keep sensitive information (such as seed phrases) safe: Three copies of the data, on at least two different media, with one of those kept in a different location. A fourth layer could be added by keeping an additional copy on an air gapped machine.
When launch?
Game Wallet is in early development. Manufacturing hasn’t started, and there are a number of hurdles before sending out actual cartridges to paying customers.
Keyp said that it plans to demonstrate the randomness of Game Wallet’s keys, conduct public audits of its open-source software, and has considered engaging an external firm to review the code prior to shipping.
As for the eventual price, this is still hazy due to uncertainties around how it will be manufactured and the number of paying customers (Sasha Mombartz, Keyp’s design chief, expects thousands for the first batch).
Schiatizzi told Blockworks he intends to sell Game Wallets for less than a Ledger Nano X — under $150. And the kicker? No firmware updates. Any additional versions of the Game Wallet will come with a completely new cartridge.
“There is no firmware, there’s no updates. You’re gonna get it once [and] we’re never gonna update it because it’s literally a cartridge, it can just never be upgraded. Upgradable hardware is as safe as upgradable smart contracts.”
All that adds a certain lo-fi-ness to this whole process of keeping seed phrases secret. “Nobody is necessarily going to think that you have your seed phrase on a Game Boy cartridge,” Mombartz said.
“And you also need to have a GameBoy — so there are all these layers that are part of the quirkiness, but that actually make it more secure and meaningful.”
Not to mention, holey supply chains often spur worries about tampered physical devices when it comes to cold wallets, undermining security of seed phrases. As Keyp CEO Schiarizzi put it: his GameBoy has sat on his shelf for 20 years. “I know exactly where it’s been. That’s just more secure than any new hardware device that can be mass produced.”
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Portfolio managers tied to the Royal Bank of Canada — the nation’s largest bank — slashed stakes across the majority of their crypto-related portfolios last quarter.
Blockworks analyzed the RBC’s SEC filings totaling 34 affiliated entities (including outside asset managers that do business with RBC), to get a pulse on institutional sentiment on equities linked to cryptocurrency operations.
(A number of outside asset managers that do business with one of RBC’s affiliates, including the state-run pension fund Alaska Permanent, were represented in the SEC disclosures. It’s likely as a result that this analysis includes stocks owned by third-party managers running limited partner or proprietary capital.)
Some crypto stocks were cut entirely. Embattled crypto-friendly bank Signature through RBC’s most recent SEC stock disclosure has fallen off from RBC’s institutional portfolio list — and neither do bitcoin mining firms Argo, Mawson Infrastructure and Iris Energy.
All are publicly traded on major exchanges, with the exception of Signature, considering the company’s stock now trades over the counter (OTC) for pennies on the dollar after its collapse.
RBC allocators held more than 41,000 Signature shares at the end of last year, worth nearly $4.8 million at the time. The bank would collapse less than two months later. It’s unclear exactly when the shares were sold, and the holdings appear to have represented a fraction of the bank’s overall holdings at the time.
Their stakes in the three bitcoin miners were far smaller, only worth a few thousand dollars altogether. SEC filings are denominated in US dollars, not Canadian dollars.
Other bitcoin miners are holding on, despite being slashed significantly. Funds doing business with RBC sold shares in 11 mining stocks. The selling activity for Riot, Cipher, Hive and Marathon were all cut by upwards of 40% in share count terms.
Financial services firm Bakkt was also shed by two-thirds,
bitcoin-heavy MicroStrategy by one-third (although $6.8 million in bonds were added),
If Block were on this chart, it would dwarf all other positions
RBC institutional investment portfolios now contain $4.8 million in COIN, per the SEC filings.
Not all moves made were bearish. RBC allocators boosted positions across 10 crypto and crypto-adjacent stocks. Hut 8 scored a near-55% boost, going from 21,745 shares ($43,000) to 33,171 ($65,600) quarter on quarter.
Jack Dorsey’s fintech Block, the firm behind BTC-friendly Cash App, was also bumped by half, with RBC portfolio managers altogether disclosing 2 million shares ($137.5 million), and an additional $9.2 million in corporate bonds.
Robinhood was more than doubled (now at 156,300 shares worth $1.35 million), as was ProShares’ bitcoin strategy ETF, BITO, although RBC funds still only disclosed $10,000 of the stock.
One surprise is Silvergate, the other crypto-friendly bank that faced an untimely demise earlier this year.
As of March 31, RBC portfolios held 84% more Silvergate shares than the previous quarter — 16,335 shares compared to 8,878.
Crypto exposure still minimal for Royal Bank of Canada
Altogether, RBC allocators held $108 million in crypto and crypto-adjacent stocks at the end of 2022. They, through their most recent disclosures, held $156.5 million — although Block makes up nearly 94% of that exposure (these figures also contain options as expressed via puts).
One year ago, that figure was closer to $200 million, and two years ago it was more than $754 million.
But again, those stats were skewed by RBC’s enormous stake in Block, worth $703 million. Block’s share price has since collapsed by three quarters.
Block hasn’t performed very well over the year to date, either
Bitcoin miner Greenidge has proven a manager favorite, with total share count popping more than 350% year on year, from 535 to 2,459, but the stake is tiny, just $9,000.
In fact, all of RBC’s disclosed crypto exposure is miniscule compared to its overall holdings. RBC itself managed $1.5 trillion in assets as of the first quarter, while its institutional funds disclosed a US-listed stock portfolio of almost $354 billion.
That puts RBC’s crypto exposure weight at just 0.04%.
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Solana’s SOL has flipped one of its primary rivals, Polygon’s MATIC, to reclaim a spot in the top 10 market caps.
SOL’s valuation was more than triple that of MATIC’s leading around the time of the Terra debacle last May — $16.8 million to $5 billion.
But the FTX disaster crushed Solana. The native token for its layer-1 network collapsed upwards of 70% in the weeks following November’s crisis.
FTX founder Sam Bankman-Fried had been one of the protocol’s loudest proponents (and biggest backers), with his venture capital dollars spread far and wide across Solana’s ecosystem.
Polygon describes itself as a “sidechain solution” that assists Ethereum in running smoothly (read: helps it scale). When Solana flipped number-two dogcoin shiba inu (SHIB) in late January, the obvious question was whether MATIC was next.
SOL did briefly eclipse MATIC around that time, for five days in total.
But it spent most of the time since valued some $2 billion lower.
Solana now has the edge by about $123 million ($7.93 billion to $7.81 billion).
Dogecoin (DOGE) is the next most valuable cryptocurrency at nearly $9.9 billion.
SOL is still about 40% below its valuation as the FTX scandal struck
Why has Solana flipped Polygon?
Granted, SOL is only worth about 1.5% more right now. And it could very well be that Polygon re-flips Solana again sometime soon.
But Solana has seen some interesting developments of late. Solana Saga, a branded Android phone filled with Web3 apps by default in the same vein as HTC’s Exodus range, is now available for public order. That’s exciting for Solana fans.
Helium, the crypto-powered incentivization system for ad-hoc wireless hotspots, also completed its migration to Solana last month. Its community voted to abandon its own blockchain network last September.
That’s not to say things aren’t buzzing in Polygon world, what with its major corporate NFT partnerships with the likes of Starbucks and DraftKings.
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Bitcoin has been trading for a hefty premium on Binance’s US exchange over the past few days — and low liquidity looks the likely culprit.
If you’re buying bitcoin (BTC) on Binance.US right now, you’ll pay around $28,050.
Over on Binance’s flagship global platform, however, traders can pick up a full bitcoin for the US-dollar equivalent of $27,650 (paid in stablecoins). Coinbase and Kraken also show the cheaper prices.
That’s a 1.5% markup on buying bitcoin via Binance’s US-regulated platform, although that gap has hit as much as 3.4% over the past few days. Spot ether (ETH) markets have shown similar inflated values on Binance.US.
Crypto prices often vary across platforms, creating lucrative arbitrage opportunities. But the current Binance.US gap has lasted much longer than previous recent instances.
The bitcoin premium on Binance.US first appeared early Saturday morning and persists until press time — almost four days.
The green line (BTC/USD on Binance.US) is much higher than the rest
Back in May 2022, bitcoin briefly traded at a 4% discount ($26,000 compared to $27,100) on Binance.US, but returned to parity within an hour.
During the Covid-19 sell-off of March 2020, bitcoin traded at around a 4% premium to the US-dollar average of Coinbase, Bitstamp and Bitfinex spot prices, per data provided by Kaiko Research Analyst Conor Ryder.
That premium hung around for a day before tapering off over the next three days. At time of publication however, the current Binance.US premium has not shown similar signs of waning.
Why is the Binance.US premium hanging around?
One theory suggests that a major market maker might have pulled out of Binance.US, reducing market depth and making prices more buoyant than usual, especially if there were markedly more buyers than sellers.
“Market depth is roughly the same, so it’s pretty clear that no market makers have left yet,” Ryder told Blockworks. “We’ve seen cases before when market makers leave and one of the most obvious effects is a decrease in market depth.”
The current Binance.US premium is really just a function of an illiquid market, according to Ryder. Blockworks reached out to Binance.US representatives but has yet to receive a response.
Binance.US has struggled to find a US-dollar banking partner ever since it was forced to stop accepting wire deposits and withdrawals back in February. While withdrawals are still possible via the Automated Clearing House (ACH) system, this process can take days.
Price disparities between exchanges are normally closed quickly
The lack of easy US dollar withdrawals could be driving users to buy up bitcoin and ether, which combined with illiquid order books has caused the persistent premium.
Coinbase — where bitcoin and ether spot prices square with rival platforms — supports US dollar withdrawals using a variety of channels, including instant cashouts in certain US states.
Kraken ceased support for ACH deposits and withdrawals in March but still services wire and SEPA.
“Slow USD withdrawals combined with BTC demand means people are rushing to trade into BTC at the same time,” Ryder said.
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It’s been exactly one year since Do Kwon’s algorithmic stablecoin gambit Terra spectacularly depegged and crashed to zero — dragging crypto down along with it.
Smoldering hot takes spread across the web as digital asset markets burned. Crypto skeptics took victory laps as Kwon “didn’t go on the run,” and even hosted their own conference amid an industry-wide downturn.
The impact of the Terra debacle can’t be overstated. Aside from wiping up to $800 billion from crypto markets, the term “algorithmic stablecoin” has been practically deleted from the crypto lexicon.
Click play to watch Terra set crypto up for one of its worst collapses in history
Only one top-20 cryptocurrency (valued as Terra depegged) has fully recovered from the ensuing market crash: Polygon, which as of this morning had added about 9% to its market value.
The rest have shed 38% from their capitalizations, on average, with Sam Bankman-Fried favorite Solana suffering the worst. SOL was worth more than $27 billion before Terra’s demise, now below $8.5 billion.
Bitcoin (BTC), BNB and XRP are still worth 19% less than before Terra collapsed.
Ether (ETH) is yet to regain 30% of its market cap.
Cardano (ADA) and polkadot (DOT) remain 50% underwater.
MATIC is the exception to the Terra crash rule
Blockworks analyzed market capitalizations of cryptocurrencies featured in the top 100 leaderboards at monthly intervals over the past 18 months.
Of the nearly 160 digital assets that fit that description, 31 have seen their market values grow since Terra’s dollar peg first wobbled — a 20% success rate.
With 1,400% gains, debutante memecoin pepe leads the charge, which is no doubt uncomfortable for those seeking some sense of utility from their digital assets.
These top cryptocurrencies have gained value over the past year
China-focused Conflux Network comes in second with 280%, followed by AI services startup SingularityNET and Justin Sun’s stablecoin USDD, which have both gained 246%.
Social media privacy protocol Mask Network isn’t far behind with 216% growth, alongside DeFi tokens Balancer and Rocket Pool, which recorded 214% and 210%, respectively.
Still, after removing the pepe memecoin as an outlier, the top-100 projects analyzed have shed 22% on average since Terra imploded, with around half of those digital assets still down 50%.
Thanks for nothing, Terra.
WAVES’ algorithmic stablecoin neutrino has actually lost more value than any Terra-related token — but not by much
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The digital assets-driven hype around Ark makes some degree of sense. ARK’s actively-managed ETFs had more than $11 billion in assets under management this week. How wrong can they be?
If Ark’s traders keep buying Coinbase shares — and if other traders follow suit — there’s a chance the stock will finally make it out of the toilet. Spot digital asset traders are known to use Ark’s COIN purchases as one US proxy for gauging crypto market sentiment.
But tracking trades piecemeal doesn’t say much about ARK’s aggregate conviction in crypto.
Think about your own portfolio: A few splurges here and there don’t reflect overarching sentiment or strategy. Neither, necessarily, does analyzing the size of individual positions.
Blockworks analyzed ARK’s entire ETF portfolio over the past two years to determine how bullish Wood’s firm has been on Coinbase over the long haul — as well as additional equities with crypto exposures.
The firm holds additional positions outside of its core actively managed ETFs, including private funds open to accredited investors as defined by the SEC. Blockworks reached out to ARK representatives for comment.
ARK Invest’s crypto-exposed stocks are worth a tad under $2.4 billion — 21% of its actively-managed portfolio
The metric that really matters is portfolio weight.
For example: adding $500,000 worth of bitcoin (BTC) to a given portfolio might sound impressive — until you learn it consists of $10 million split up among memecoins and illiquid NFTs.
In a scenario like that, the BTC would have been seen as a necessity to hedge the outsized risk of the investor’s bullishness on moonshots. And if the BTC was added alongside those Hail Marys in similar amounts, then the construction of the portfolio would stay practically the same.
ARK has almost tripled Coinbase weight
Two years ago (about one month after Brian Armstrong’sexchange went public), Coinbase made up 1.75% of ARK’s total holdings. It held close to 2.7 million shares at the time, worth $790 million.
Since, Coinbase’s stock price has tanked more than 80%.
COIN changed hands for around $300 back then. It closed Thursday’s trading session in New York at $49.22.
(Wood’s website on Thursday indicated that her firm’s cost basis was $239.60 to $254.65, drawing on a sample size of three separate positions.)
ARK’s portfolio was weighted by 4.83% to Coinbase on May 3.
It held nearly 10.8 million COIN shares — four times as many from two years ago.
Those shares were worth $556.6 million.
These 20 ARK stocks have seen their weightings increase the most
So, ARK has quadrupled the amount of Coinbase shares in its portfolio in two years and now owns virtually 6% of all outstanding. Even so, its COIN stash is worth 30% less.
ARK has indeed added 3.08% to its Coinbase weight since May 2021, and COIN is now its fourth biggest holding.
But it’s barely more than it was during the peak of the previous bull market 18 months ago, when COIN commanded 4.55% of ARK’s total portfolio.
COIN’s share price, then trading above $330, had a lot to do with that then. The US crypto exchange traded at steep, and perhaps unsustainable, multiples during the bull market.
ARK’s 5.6 million-odd Coinbase shares were worth $1.88 billion then, and the firm has since snapped up an additional 5-million-plus shares.
An analysis of weight adjustments to 219 stocks held by ARK’s six actively-managed ETFs over the past 24 months shows that COIN was the firm’s second-most favored stock across that period, slightly ahead of Zoom and DraftKings.
Only robotic automation software firm UiPath ranked higher by that methodology, increasing from 0.57% to 4.73% to sit in sixth place.
ARK is still adding shares for crypto-exposed stocks
Yes, ARK does hold other crypto-exposed stocks
Enough about Coinbase.
ARK has been willing to buy and hold other stocks impacted by the ebbs and flows of crypto markets, even through its prolonged downturn.
Discount brokerage Robinhood appears to be Wood’s second-favorite crypto child, holding about 28.1 million shares worth $237.9 million.
The Menlo Park firm — which at one point counted on Dogecoin for 62% of its crypto revenues — makes up 2.07% of ARK’s total portfolio.
ARK’s HOOD weight has multiplied from 18 months ago (1.02%).
The stock has since tanked about 75%, but ARK has more than doubled its share count (although that figure has been trimmed over the past year).
Its weighting is still down from October 2022, when HOOD hovered at 2.26%.
ARK is buying COIN, but it isn’t exactly doing its portfolio any favors
ARK has also bumped its weighting of Jack Dorsey’s Bitcoin-forward fintech Block (formerly Square).
Block — which holds BTC and supports the crypto via Cash App — was 3.65% of ARK’s portfolio two years ago. It’s now at 4.59%, Block ARK’s seventh-largest holding and worth $528 million.
Chipmaker Nvidia, whose crypto exposure was slashed when Ethereum ditched proof-of-work last year, has an increasing place in ARK.
NVDA was only 0.13% of ARK’s portfolio in May 2021. It’s now 0.95% (ARK also holds some shares in rival AMD, however its historical crypto exposure has been estimated to be far lower than Nvidia’s).
Wood has rid her portfolio of Silvergate altogether (0.24% weight towards the end of last year, worth $31.6 million).
ARK’s Tesla and GBTC weighting have barely budged over the past two years (currently 7.34% for TSLA and 0.76% for GBTC — the latter worth $87.3 million).
Overall, weight for ARK’s crypto-exposed stocks has jumped 55 percentage points over the past two years, from under 14% to 21%.
ARK’s actively-managed ETFs handled about $44.4 billion in assets in May 2021, per Wood’s data, and crypto-exposed stocks made up $6.1 billion (although Tesla was almost half that amount).
Now, those same funds contain $11.3 billion, with stocks with crypto exposure amounting to less than $2.4 billion.
Find ARK’s biggest portfolio moves outside of the digital asset industry outlined below.
ARK no longer holds any Spotify, DocuSign or Zillow stock
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Some have lauded pepe’s quick rise to the top-100 market cap leaderboards, anchored in a 1,900% price rally in less than three weeks.
Pepe (not to be confused with the legendary PEPECASH) is presented as an homage to the internet’s favorite notorious green frog, powered by cute tokenomics meant to “make memecoins great again.”
But not everyone is sold.
On CoinGecko — one of the top two crypto market data providers — pepe’s market is worth about $519 million. That figure is found by multiplying its memey total supply (420.69 trillion) by its current price (roughly $0.00000122 at time of publication,) placing it at the bottom of CoinGecko’s front page, at rank 98.
Rival site CoinMarketCap is instead for now keeping pepe all the way on page 27, relegating it to rank 2,612.
Crypto projects of similar position command market caps of just $100,000, a tiny fraction of pepe’s purported value.
Some have suggested that CoinMarketCap is intentionally ignoring pepe’s true market cap, perhaps as some grand conspiracy to thumb noses at upstart cryptocurrencies and their froggy backers.
But a CoinMarketCap spokesperson told Blockworks that the decision has more to do with difficulties in verifying pepe’s circulating supply.
“By default, all unverified market caps are ranked in the same ballpark,” the spokesperson said. “The situation is fluid, we’re trying to gather more information.”
Pepe has made a splash, but still has a long way to go to rival all-time returns for dogecoin and shiba inu
‘Mysterious PEPE whales’ snapped up supply
CoinMarketCap’s spokesperson cited a Twitter thread posted on Apr. 19 (a few days after the token started trading on Uniswap) by the research arm of quant trading shop Thanefield Capital.
The thread highlighted key concerns around a set of “mysterious whales” who’d had gobbled 28.9 trillion PEPE (about 7% of the total supply) within a few minutes of it trading on exchanges.
The wallets acquired their pepe with an average cost of 0.61 ETH ($1,137) — 28.9 trillion PEPE is now worth more than $30.6 million.
However, the firm noted that if even a small fraction of those tokens were sold, pepe’s thin liquidity would mean the token’s price would collapse.
“This behavior raises questions about whether these wallets belong to insiders or the [Pepe developer] team, as not only did they have impeccable timing, but they are also holding a considerable amount after a significant run of 1000x,” Thanefield said at the time.
“On the other hand, it is also impressive that these wallets demonstrate strong conviction by holding onto their positions even after a [massive run].”
CoinMarketCap’s spokesperson told Blockworks that the pepe team claims the token’s circulating supply is equal to its total supply — which would mean the wallets flagged by Thanefield should not belong to any project insiders.
The site is still in the midst of evaluating whether that’s the case. CoinGecko declined a request for comment, while the pepe team is yet to respond.
In any case, there are other red flags associated with pepe. Smart contract auditing firm GoPlus Security cites three potential security risks which could result in pepe doubling as a so-called “honeypot” — a ruse to enrich project insiders via an exit scam (otherwise known as a rug pull).
Honeypot risks include the potential for developers to suspend trading, limit transactions and blacklist addresses from interacting with their tokens.
If that doesn’t dissuade you, then perhaps pepe’s own disclosure will:
“PEPE is a meme coin with no intrinsic value or expectation of financial return. There is no formal team or roadmap. The coin is completely useless and for entertainment purposes only.”
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Ripple has continued to pour billions of dollars into its own cryptocurrency XRP, spending almost $2.6 billion on the token last quarter.
The firm — still embroiled in a tense SEC battle over the securities status of XRP — netted slightly more by selling XRP over-the-counter, pulling in more than $2.9 billion throughout Q1.
That means Ripple directed cash equal to 88% of quarterly XRP sales revenue towards buying the cryptocurrency on secondary markets. It spent 6% less than the previous period.
XRP jumped about 60% across Q1, buoyed by similar rallies for bitcoin (BTC) and ether (ETH).
Ripple’s net XRP sales were worth around $361 million last quarter, with tokens going to customers utilizing its blockchain-powered payments rails, which it calls “On-Demand Liquidity” (ODL).
Ripple’s ODL is a different system to its new bank-focused settlement protocol RippleNet, which due to current regulatory concerns cannot support XRP as yet.
Ripple sells XRP to ODL users in transactions that don’t directly impact prices on crypto exchanges. It stopped selling XRP programmatically back in 2019.
Ripple’s XRP buying and selling fell slightly this quarter, but both still way up on 2021
The San Francisco-headquartered firm began buying XRP one year later, Blockworks previously reported. At the time, Ripple stated it was doing so to “support healthy markets.”
Since then, Ripple has dramatically ramped up its XRP purchases — which do interact with crypto exchange prices — despite its high-profile run-in with the SEC.
XRP traded for $0.22 shortly after the SEC’s lawsuit went public, but rallied up to 700% during the 2021 bull market. It’s now hovering around $0.47.
Still, the exact impact of Ripple’s market activity on XRP’s price remains unclear. Blockworks has reached out to Ripple for comment.
“Since 2020, Ripple has sourced XRP from the open market to ensure there is a sufficient supply of XRP available for our growing ODL business,” Ripple said in its disclosure.
“We continually strive to minimize undue market impact with our purchases by, for example, limiting how much and from whom we purchase XRP.”
Ripple briefly stopped buying XRP amid US banking crisis
Ripple has now spent $10.9 billion on buying XRP since the SEC filed charges against the firm and its executives in Dec. 2020. The SEC alleges Ripple’s historic XRP sales constituted a $1.3 billion unregistered securities offering.
Ripple had only disclosed $80.4 million in XRP purchases until that point.
Ripple’s buys coincide with a huge boost in ODL-related sales, now at $14 billion since the SEC’s lawsuit.
Ripple has effectively recycled 78% of its XRP sales revenue to buy the token on secondary markets since the allegations first broke.
The firm said that it paused its XRP buying for “several days” due to the US banking crisis in March.
“This activity has since resumed and the company expects to continue to undertake purchases as ODL adoption grows,” Ripple said in its disclosure.
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Ask superstitious Bitcoin fans about halvings and they’ll say they’re outrageously bullish, historically marking the onset of monumental price rallies.
What about Litecoin halvings?
Bitcoin’s fourth halving event — which will again slash BTC issuance by 50% — is expected to hit this time next year. But spinoff blockchain Litecoin (LTC) will see its own halving in 100 days.
Halvings occur every four years (every 210,000 blocks for Bitcoin, 840,000 blocks for Litecoin). Bitcoin’s issuance will drop from 6.25 BTC ($171,000) per block to 3.125 BTC ($85,400), while Litecoin’s will go from 12.5 LTC ($1,100) to 6.25 ($550).
All Bitcoin and Litecoin halvings have coincided with epic bull markets. Blockworks analyzed price data starting six months before each halving and encompassing up to one year after. BTC exploded up to:
20,000% around the 2012 event;
560% across the 2016 halving and;
780% over the 2020 episode.
Most of BTC’s gains were seen almost a full year after each halving took place. Litecoin halvings have also aligned with similar bullishness, but in a very different pattern.
Unlike bitcoin’s after-the-fact rallies, LTC has pumped the hardest in the six months before its halvings occurred.
There does not appear to be a distinct pattern in LTC’s price performance in the year following each event. But the six months leading up to both halvings were eerily similar.
LTC peaked at about 320% gains roughly 45 days out from each halving.
It gave up most of those returns in the month directly after.
LTC rounded out the year after each event up between 80% and 110%.
Select the log view to better compare Bitcoin halvings
Bitcoin and Litecoin share source code (and halvings)
Riyad Carey, research analyst at Kaiko, told Blockworks that halvings have been historically bullish catalysts for both BTC and LTC.
“The timing of these halvings is quite interesting: ETH recently moved away from proof-of-work, which helped propel both Bitcoin and Litecoin’s hash rates to all-time highs as miners looked for alternatives,” Carey said.
There are other concerns: Bitcoin mining profitability tends to shrink after each block reward reduction, as miners are increasingly relying on transaction fees for revenue as they wait for speculative market prices to catch up to profitability.
Carey continued: “Litecoin was for many years a top-five token but has since lost that position to newer, primarily Layer-1, tokens. A pre-halving price rally could generate some excitement and potentially attract miners if they look for alternatives to Bitcoin.”
It is also worth stressing that the sample size of Bitcoin and Litecoin halvings are incredibly small, which renders realistic conclusions difficult to grasp.
Litecoin launched in 2011, not by hard forking the Bitcoin blockchain (as is the case with Bitcoin Cash and the like), but by creating a direct fork of its source code.
Litecoin developers, led by founder Charlie Lee, made small changes to Bitcoin’s original codebase. Namely faster block times (every 2.5 minutes compared to Bitcoin’s 10 minutes, on average) and a higher supply cap (84 million to Bitcoin’s 21 million).
Litecoin’s value proposition was once that it could serve, in some sense, as a spiritual sister network, handling smaller transactions faster and cheaper than Bitcoin, while also acting as a store of value.
The advent of the Lightning Network shifted that narrative somewhat. Litecoin eventually grew to be a primary testing ground for potential Bitcoin upgrades — privacy focused technology MimbleWimble being one example.
Litecoin’s price is so far tracking its 2015 halving
There are differences, but the general concept is the same: Distribute cryptocurrency to proof-of-work miners as payment for validating transactions and securing the network against 51% attacks.
Different crypto, different investors
Halvings cut those miners’ block rewards in half, leading to a boost to scarcity. As Kaiko’s Carey mentioned, mining profit margins are simultaneously narrowed, especially in Bitcoin’s case; there are less rewards for the same energy-intensive operations.
Unless, of course, prices surge dramatically to make up the difference.
“There clearly are speculators who dabble in Bitcoin in a big way, just as they dabble in Litecoin and other coins, but I would argue that the fundamentals of BTC are the strongest,” Bob Ras, co-founder at tokenized security startup Sologenic, told Blockworks.
“And because the fundamentals are strong with BTC, this means that it’s only natural the impact from the halving is experienced afterwards instead of before.”
Litecoin tends to rally hard leading up to its halvings because its users are mostly speculators, Ras reasoned, “playing ping pong of sorts” until LTC whales begin dumping after the halving.
Bitcoin sees “mega surges” following its own halvings due to their “dramatic impact on supply and scarcity,” Ras said.
“After all, a lot of Bitcoin is self-custodied and therefore the availability of BTC on exchanges is relatively less on a proportional basis. So when that supply shock kicks in, and if demand stays the same or increases, then the only option is that of fireworks.”
As tempting as it is to see the face of god in market reactions to halvings, correlation does not necessarily imply causation, and these milestones are no different — be they Bitcoin or Litecoin.
Still, a wise investor would strap in for increased volatility. The halvings are coming.
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Public blockchains have revolutionized how we view money. But they’ve also unlocked a brand-new form of financial voyeurism.
Instead of poring over SEC filings or Forbes lists, the crypto-curious can now ogle billionaires for kicks entirely on-chain.
Luckily, there’s no shortage of crypto billionaires. But most are practically anonymous, known only by their pseudonymous blockchain addresses.
There are, however, a select few crypto moguls who lay bare their portfolios for all to see, warts and all.
Ethereum co-founder Vitalik Buterin
Buterin was crowned the world’s youngest crypto billionaire by Forbes in 2021 — when ether (ETH) cleared $3,000 for the first time. On-chain data can’t verify the ‘youngest crypto billionaire’ moniker, but it does seem to corroborate those numbers.
Buterin’s known crypto portfolio was valued at about $2 billion in May 2021, per Arkham Intelligence. ETH understandably made up about half of those holdings. But Buterin has been worth far more than that, in the throes of dog coin mania.
Plucky dog coin fans and issuers have historically flooded Buterin’s Ethereum addresses with immense amounts of illiquid tokens. It’s a form of guerilla marketing — aiming to trick chain watchers into believing Buterin was deep in their useless memecoins.
Vitalik Buterin was a prime target for dog coin marketers during the last bull run
And so, on May 12, 2021, Buterin’s crypto portfolio was worth more than $20.5 billion – which would have put him on par with the likes of Bridgewater’s Ray Dalio and Google’s Eric Schmidt.
Shiba Inu (SHIB) made up $17.8 billion of those funds (87%), but there were myriad other dog coins including AKITA and HUSKY. The subsequent (and arguably inevitable) SHIB crash tanked their value considerably, and Buterin donated whatever was left to India’s Covid relief fund.
Buterin now holds about $484 million in crypto in his known addresses — practically all of it ETH. Arkham Intelligence indicates Buterin has sent $74 million in on-chain assets to crypto exchanges over the years, including Coinbase and Kraken.
Ripple co-founder Jed McCaleb
McCaleb’s crypto billions were dished out over nearly a whole decade.
Until last year, Ripple Labs had sent a steady stream of XRP to McCaleb’s infamous “tacostand” address, and he subsequently sold it on public markets.
Ripple initially had concerns over how quickly McCaleb sought to dump his founder’s reward, which amounted to 9 billion XRP in total (worth $54 million when the case was settled, $4.2 billion today).
The settlement saw strict rules on how much XRP McCaleb would receive per year, starting with $10,000 every week in 2015 to 2 billion XRP ($844 million) each year after 2020.
Jed McCaleb’s XRP sales peaked in 2021 (source: Whale Alert)
McCaleb’s ‘tacostand’ now holds zero XRP, having received the last tranche of payouts in mid-2022.
Chain watcher Whale Alert estimated McCaleb had sold 5.7 billion XRP over eight years, raking in $3.1 billion. The firm found that McCaleb sold XRP for an average price of $0.55 per token, or about 19% above its current price.
Forbes today estimates McCaleb’s net worth at $2.4 billion, having gone on to found rival blockchain network Stellar.
TRON founder Justin Sun
His (former) Excellency held $6.3 billion in crypto at his portfolio’s peak in Sept. 2021.
That figure would’ve placed Sun in the top 500 richest billionaires in the world, in line with Lululemon founder Chip Wilson and Viking Global’s Andreas Halvorsen.
Sun has a reputation for degeneracy, and his portfolio at all-time high is supporting evidence.
About 95% of his portfolio was locked inside lending protocols Aave and Curve, earning yield, as markets closed in on their record highs — including 2.63 billion USDC, 478250 WETH ($1.86 billion) and 11,000 BTC ($545 million).
Justin Sun stakes his ETH with Lido
Today, Sun’s known crypto portfolio is worth $858 million.
303,660 Lido staked eth (STETH) makes up $580 million, followed by $160 million in Sun’s stablecoin USDD.
He also holds 23,724 ETH ($46.76 million) and 6,802 MKR ($4.97 million)
Sun is indeed a prolific trader. The data indicates he’s sent $22.6 billion in crypto to exchanges over the years, more than half of it going to Binance.
Satoshi Nakamoto and other anons
Bitcoin’s mysteriously absent creator is believed to have mined anywhere from 600,000 BTC ($16.75 billion) to 1.1 million BTC ($30.7 billion) throughout the early years.
All those bitcoins are believed to have been spread out across hundreds of addresses, so tracking those funds directly is somewhat difficult.
If the higher estimate is true, Nakamoto would place in the top-50 billionaires in the world, just shy of Chanel chairman Alain Wertheimer.
The notorious “1Feex” address is another notable on-chain billionaire. Since Mar. 2011, the address has held close to 80,000 BTC ($2.25 billion) once controlled by Ross Ulbricht’s Silk Road marketplace.
Craig Wright claims to own the address tied to the Silk Road hack
It’s believed someone connected to the monumental heist has access to ‘1Feex,’ although claiming the BTC would no doubt bring a certain amount of unwanted heat.
That didn’t stop self-proclaimed Bitcoin creator Craig Wright from (unsuccessfully) claiming ownership of the funds during one of his court cases last year.
Just under a dozen Bitcoin addresses not associated with crypto exchanges or other entities contain $1 billion or more. Curiously, no unattributed Ethereum addresses contain $1 billion or more ETH right now, according to Etherscan.
Coinbase CEO and other off-chain billionaires
Crypto billionaires with a majority of their wealth off-chain deserve a special mention.
Brian Armstrong, Coinbase co-founder and CEO, currently holds about $590,000 in his known addresses, Arkham Intelligence data shows, almost all of it ETH.
Armstrong’s portfolio was worth $1.23 million at its peak in early February, comprised practically entirely of DYDX, the native token for the decentralized exchange of the same name. Forbes puts Armstrong’s current net worth at $2.5 billion.
Dallas Mavericks owner and prolific crypto backer Mark Cuban boasts about $4 million. USDC makes up more than half, followed by STETH and wrapped ETH.
Mark Cuban (@mcuban) makes a case for why the American government needs to embrace crypto over than gold, which he calls “useless”. pic.twitter.com/bdjbhxgdxd
Mark Cuban has been making the case for crypto for years
At all-time highs last August, Cuban held $7.16 million, but 86% of it was USDC locked inside Aave. ETH, ApeCoin (APE), ENS and Rarible (RARI) made up the remainder, among others. Forbes estimates Cuban’s entire net worth at $5.1 billion.
Of course, there are plenty of other crypto billionaires out there, and the featured names may very well have unknown crypto holdings.
Still, it’s clear that some prominent figures put their crypto where their mouth is.
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Michael Saylor’s former firm MicroStrategy recently activated a special Bitcoin “Lightning Address” mapped to his corporate email.
Rather than QR codes or complicated strings of characters, Lightning Addresses allow users to direct bitcoin (BTC) to standard internet identifiers, such as email addresses or usernames.
Saylor shared a screenshot showing a steady stream of bitcoin tips flowing from fans, each one 21 satoshis (the smallest bitcoin unit, otherwise known as sats).
Bitcoin’s Lightning Network is a layer-2 scaling solution that makes BTC transactions faster and cheaper, although there are security trade-offs.
Lightning balances and transactions are somewhat private compared to Bitcoin mainnet transactions. It’s not possible to reverse engineer either MicroStrategy or Saylor’s transactional history to determine just how “rich” Bitcoin fans are making Saylor (whose net worth is already valued at $1.2 billion).
Still, as of Monday evening, Saylor had netted 7,985 sats ($2.40), per his screenshot, and he’s almost definitely received more since then. Saylor’s MicroStrategy holds more bitcoin than any other public company in the world, with 140,000 BTC ($4.2 billion).
Communicating through micropayments like these is common in crypto circles. Hacking victims have even negotiated with their attackers via on-chain messages tied to tiny crypto transactions.
Other instances involve sending BTC to fictional characters to break the fourth wall, as was the case when a BTC address tied to Elliot “Mr. Robot” Anderson briefly flashed on screen in season four.
Fans sent a total of 0.00443373 BTC ($134.14) to Elliot’s address over time, which was eventually withdrawn. Saylor may eventually attract even more to his email-fused Lightning Address.
But there’s a long way to go to cover Saylor’s potential losses resulting from his ongoing Washington, DC tax lawsuit. The former MicroStrategy CEO is still on the hook for $25 million in unpaid taxes, penalties and associated interest.
That works out to be 828 BTC at current prices, or more than 3.9 billion individual tips of 21 sats a pop.
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Ethereum has either fully or partially processed nearly 300,000 ETH ($617 million) in staking withdrawals since Shapella went live Wednesday.
Almost 5,600 validators have completely unstaked their ETH in that time, representing 1% of the network’s entire set.
An additional 17,500 validators are currently waiting in the withdrawal queue, as of midday ET. The combined stake of those exiting validators represents a minimum of about 563,000 ETH ($1.16 billion).
Post-Shapella, Ethereum caps the number of validator withdrawals per day at 1,800, so the current queue should be cleared in 10 days, although more are expected to join.
There are still more than 563,000 active Ethereum validators, so the outflows won’t make a dent in the network’s overall security. More relevant is how validator outflows are changing ETH’s liquid supply.
The total number of ETH staked has fallen 0.76% since Shapella went live, per Blockworks Research, which means 137,600 ETH ($283.3 million) in additional liquid tokens.
CoinGecko reports $16.8 billion in ETH trade over the past 24 hours — vastly more than what’s been unstaked so far.
As for the validators that have already completely exited, crypto exchange Kraken is responsible for 41%, according to Rated Network’s explorer.
Those unlocks were potentially inspired by the firm’s SEC settlement from February, which demanded it cease offering staking-as-a-service products, including those related to Ethereum.
There are fresh ETH deposits flowing into the Beacon Chain
Huobi and self-styled “automated wealth creation community” PieDAO come in second and third for validator exits, with 23% and 13% of the recent set, respectively.
However, fresh validators are coming in. As of midday ET, users have staked close to 162,300 ETH ($333 million) in the Beacon Chain since Shapella, according to Blockworks Research data, equal to as many as around 5,100 new validator nodes.
Some speculated that ETH would tank under selling pressure from newly unstaked validators. The earliest stakers locked their tokens in the Beacon Chain back in November 2020 — when ETH was worth $700.
ETH’s price is now worth more than triple, currently trading for just under $2,100. ETH went for as much as $4,600 last November, at the peak of the last bull run.
But, as it turns out, the market has easily absorbed validator liquidations so far, now up 9% since withdrawals were activated.
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Bitcoin and ether are crypto’s blue chips. And much like tech giants Apple and Microsoft, they’ve attracted distinct and loyal communities, leading to a natural rivalry.
But BTC is still the market leader. It commands almost half of the entire crypto capitalization, its dominance now at one-year highs. That’s still less than the 2018-2019 bear market, when bitcoin dominance was as high as 71%.
ETH meanwhile makes up nearly 20%, more than double what it was when the market bottomed last cycle. Comparing returns since Apr. 2018 shows bitcoin outstripping ether for most of that interim —- until May 2021.
Bitcoin was just coming down from reaching $60,000 for the first time, while ether was correcting after attempting to break $4,000.At that point, bitcoin had returned around 550% since the first inning of the previous bear market, going from $7,900 to nearly $51,000. Ether had just eclipsed bitcoin, having jumped more than 700%.
Bitcoin and ether are practically even over the past five years
Ether would hold onto that lead for practically the entire bull market and then some. Bitcoin has gained ground though, thanks to a falling ETH-to-BTC ratio (down 13.5% over the past year).
BTC is now a whisker away from topping ETH over the past five years — the former returning 279% to the latter’s 289%.
Simple charts like these suffer from a certain amount of time bias (the five-year returns may look completely different in another three months).
Still, Bob Ras, co-founder of tokenized securities startup Sologenic, explained that the narrative has shifted somewhat when it comes to Bitcoin and Ethereum since the 2021 bull run.
“There was so much strength behind the Ethereum ecosystem because of all the utility enabled by DeFi, NFTs, ENS and other applications,” Ras told Blockworks.
“During the bull run, there were a lot more users around who were toying with various digital asset applications, and so it made sense for Ethereum to have been the key driver of growth.”
The three-year chart tells a different story: ETH has dominated BTC over the past three years (1,085% to 327%)
Bitcoin has performed less bad than ether
The macro situation has changed since the 2018 bull market, capped off by the recent US banking crisis.
Ras noted that the Federal Reserve will have to pivot away from its tightening policy soon, which could inject more liquidity into the market to prevent a credit crunch.
“Bitcoin is now rivaling gold and other stores of value when it comes to hedging against these likely forthcoming liquidity injections, which will ultimately contribute to the debasement of the dollar and other fiat currencies,” Ras said.
“BTC is the hardened, reliable asset right now. The narrative could shift again, of course, but it seems likely that the ETH/BTC ratio could trend downwards for some time — perhaps until the next bull market fully kicks in.”
Zooming in to just the past year shows where those ‘gains’ have been made
BTC has outperformed ETH easily since April 2022, weeks before Terra would depeg, causing chaos for crypto. BTC is down almost 26% while ETH has fallen 37%.
Although, it would be more accurate to say bitcoin has performed “less bad,” considering neither have boosted portfolios over the past year.
Zooming out to encompass all-time returns however, bitcoin blows ether out of the water.
Bitcoin has returned a pearl-clutching 4-billion-percent since its earliest recorded price in late 2009 ($0.00076392).
Ether has “only” risen 66,544% since it first launched in 2015. Rookie numbers.
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Bitcoin is once again trading above $30,000 — welcome news for those public companies with BTC on their balance sheets.
In fact, software intelligence firm MicroStrategy is now in the green on its bitcoin buys, having flirted with margin calls in the depths of the bear market months back.
MicroStrategy boasts the largest corporate treasury of any public stock by far. The firm, under leadership of former CEO Michael Saylor, has bought 140,000 BTC for $4.2 billion since August 2020, per BitcoinTreasuries.
MicroStrategy’s stash is now worth $4.234 billion, representing a nearly 1% gain.
Jack Dorsey’s fintech company Block (formerly Square) is faring better. Block has so far acquired 8,027 BTC for $220 million — worth $242.7 million as of midday Tuesday, a 10% jump.
These public companies have a known cost basis for their bitcoin
Tesla isn’t so crash hot. Elon Musk’s electric car giant may have sold most of its bitcoin last year, but it still held 9,720 BTC as of the end of 2022. Tesla’s cost basis for that crypto is calculated as $337.5 million.
The company’s bitcoin is currently worth a touch over $293.3 million. That means Musk is about 13% in the red on BTC. Bitcoin would need to reach about $34,750 for Tesla to break even.
Balance sheets for a raft of smaller stocks are also suffering.
Japanese-South Korean mobile game studio NEXON, Norwegian energy-focused holding company Aker and Chinese selfie app maker Meitu all bought bitcoin in the heat of the 2021 bull market (the latter also bought some ether).
All three firms are now down more than 40% on their bitcoin investments — together feeling more than $92 million in paper losses.
How corporate bitcoin balances have changed over the past year (all figures as of latest disclosures)
And while it’s difficult to quantify the impact BTC has had on share prices (MicroStrategy aside), stocks with large BTC balances have underperformed against the S&P 500 over the past year.
Except for Meitu, which has now doubled after claiming its close to profitability.
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But while the SEC has dished out more than 80 enforcement actions against crypto startups since 2017 — 30 of them last year — there is one case that trumps almost all others. The SEC vs. Ripple.
Although many crypto industry observers previously saw Ripple as the butt of the joke, the SEC case (win or lose) is sparking what appears to be a 180 degree change in how crypto diehards view the long-derided company.
Gensler is adamant there’s no need for crypto-specific securities laws. And among those 80 or so cases against crypto startups are instances of outright fraud and other misdealings. Those efforts must be applauded.
But in the background all along, from before Gensler’s time, Ripple has been funding a full-scale legal defense against the US securities regulator. It has also publicly refused to settle, bucking the trend of crypto startups ponying up to SEC fines.
Critics would have once said that XRP is a centralized, entirely premined with Ripple Labs awarding itself 80% of the supply from the get go. Others would take offense on a more philosophical level: XRP is the banker’s crypto, built to strengthen the existing finance system that Bitcoin was so immaculately conceived to undermine.
But today, if crypto insiders were looking through their enemies’ enemies for new friends, Ripple and Garlinghouse are top of the pile.
A badge of honor
All this time and he still doesn’t understand, or is pretending not to understand, that Ripple is a company and XRP is a digital asset. He thinks XRP can say things!
Ripple Labs CEO Brad Garlinghouse has never exactly tried to mend the divide between Ripple and the rest of the crypto world.
His $5 million “Change the Code, not the Climate” campaign, launched alongside Greenpeace last year, aims to convince Bitcoin to ditch proof-of-work mining with newspaper ads and whatnot.
But the stunt has amounted to more annoyance than any real clout. Bitcoiners even ironically adopted the campaign’s apocalyptic mascot.
Despite the ongoing SEC strife, Ripple also claims its business is better than ever. Institutions do seem increasingly eager to use its crypto-powered payment rails: Ripple now discloses billions in quarterly revenue from selling XRP over the counter for use on RippleNet, spending a near-equal amount to rebuy the token on public markets.
Not that it really matters. XRP has persistently been one of the most valuable blockchain projects in the world. There’s a certain Lindy effect that comes with nearly a decade of staying power in crypto.
All this we know. The interesting part isn’t that Ripple is considered to be a success in spite of its detractors — it’s interesting now who considers Ripple to a success. It took crypto’s no. 1 villain, Gary Gensler, to fully legitimize the project in the eyes of the formerly-dubious crypto crowd.
I’ve been critical of Ripple in the past (various reasons), but more aligned with them than ever before.
Ripple should win the overreaching XRP-SEC case, and the XRP Ledger should be afforded the opportunity to compete fairly on digital payments infra globally.
It used to be that crypto startups were cursed if their tokens were labeled securities — something must be wrong with the project if even the SEC knows it’s centralized.
But now, the agency’s fixation on interest-bearing crypto accounts — Coinbase’s proposed lending product and Kraken’s staking as a service offerings — have set the stage for Ripple’s redemption arc.
It seems realistic that the SEC case could cripple Ripple outright. But the case may well have secured Ripple’s reputation for good.
If Ripple wins, it will have defeated Goliath, to be crowned a crypto champion. Ripple’s reputation would only be steelmanned if it lost. A monumental fine could hypothetically bankrupt the firm, but considering its current revenues, it’s unlikely.
It could be that nothing really changes for Ripple after the case concludes — win, lose or jury trial.
Except, one major shift: The magnetic poles of the crypto industry have flipped. XRP is now bona fide in the eyes of a once-hostile industry.
All thanks to the SEC.
David is an Editor based in The Netherlands focused on data-driven journalism. Previously, he wrote for TheNextWeb’s crypto vertical before launching Protos in 2021. He’s a reformed hardline Bitcoiner passionate about permissionless and decentralized networks. Contact David at david@blockworks.co
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Crypto and institutions go together like lightning and thunder these days. Traditional finance shops are moving over, while the digital asset market births debutants all by itself.
This brings about two problems:
How do institutions — which are meant to represent the smart money — find market moving information before markets move?
How can they share that information with clients while remaining compliant with strict data security controls?
The Tie, a crypto-native data platform, is gunning to solve both concerns. In the same vein as Bloomberg Terminal, the firm’s crypto-only terminal platform serves as an all-in-one screener for news, market data, regulatory filings, analytics and research.
The startup, founded in 2017, says it has attracted more than 150 hedge funds, asset managers, venture capital firms, over-the-counter desks, market makers and the like (and even news organizations such as Blockworks).
It’s common for such firms to rely on encrypted messaging apps such as WhatsApp, Signal or Telegram — but regulators have recently handed out billions of dollars in fines for communicating about trades or other orders via platforms that don’t preserve business records, a key SEC requirement.
Those firms require chat histories to be stored and logged in a compliant manner, and until recently, they haven’t had a way to communicate with their counterparties from within the terminal.
“The roll-out of The Tie Terminal Messenger enables firms like ours to take advantage of [the digital asset investor network] and compliantly communicate with a range of leading market participants including banks, asset managers, funds, and liquidity providers,” Rob Hadick, general partner at Dragonfly Capital, said in a statement.
There are other firms shooting for the same market. Aurox, for one, is a free terminal service intended to support fast-moving crypto traders, but its offerings are more skewed towards retail investors, rather than institutional types.
Other crypto-specific terminals, such as Orion Terminal, are more like market aggregators, allowing trades across multiple platforms all under one umbrella platform. And of course, there’s the Bloomberg Terminal, which does support a number of cryptocurrencies, but its selection is comparatively limited.
To help service institutional types that need more variety, The Tie’s terminal messenger is SOC 2 compliant, a benchmark built by the American Institute of CPAs, which translates to strict internal controls regarding how data — such as sensitive financial messages between institutions — is stored (to avoid leaks and whatnot).
All Tie Terminal users are verified via corporate email, reducing the chance of profile spoofing commonly seen across Telegram and WhatsApp. The firm says around half of its clients are using the messenger app but declined to give specific metrics for total usage so far.
“More than 80 of our 150+ clients have turned on Messenger and we are already seeing a significant number of messages per day,” CEO Josh Frank told Blockworks. “We anticipate both users and messenger volume to increase over time as new connections are formed and comfort with the feature improves.”
The Tie was valued at $100 million in March last year, when it raised a $9 million round led by Avalanche-focused venture firm Blizzard.
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Bitcoin and ether may be cryptocurrencies built atop public blockchains, but that’s really where their similarities end.
Yet they trade in almost exactly the same way — their prices move increasingly in tandem to near complete correlation. And they’ve been tightening ever since ether (ETH) started trading almost eight years ago.
Across 2016 and 2017, bitcoin’s 100-day correlation with ether averaged at 35% (where 100% indicates complete correlation, -100% being complete inverse correlation). That number jumped to 66% across 2018 and 77% in 2019, before reaching more than 87% last year.
So far this year, bitcoin (BTC) and ether’s correlation coefficient has averaged out to 98%. So, whatever bitcoin does — ether does too, with near perfect precision.
But why is their correlation increasing, and not decreasing? Their value propositions are quite different.
Bitcoin is a pure-play decentralized cash system that doubles as a store of value. Bitcoin’s famous 21-million supply limit promotes scarcity in the vein of Austrian economics — that commodities should back currencies rather than the state.
Ethereum, on the other hand, supports an array of use-cases outside of the strict money doctrine: digital collectibles, prediction markets, metaverse communities and blockchain gaming.
Dessislava Aubert, a Kaiko research analyst, told Blockworks that macro investors tend to group bitcoin and ether together as risk assets (or crypto more generally), leading them to treat the two in a similar manner.
“This could explain why they are highly correlated, especially during periods of market turmoil when investors tend to be less discerning,” Aubert said. “However, as these assets mature, and their fundamental differences become clearer this is likely to change.”
Mainstream investors treat bitcoin and ether the same way
A rise in mainstream investment could also be responsible for the correlation. Sam Doctor, chief strategy officer at crypto-focused financial services firm BitOoda, reasoned that the bitcoin and ether camps were initially different, leading to distinct investor groups pumping money into their preferred cryptocurrencies (in other words: BTC and ETH “maximalists”).
More mainstream investors — whether retail or institutional — have joined the market in recent years. “These tend to view crypto more as one trade, want exposure to the asset class and are diversifying into the top two, three or four tokens,” Doctor said.
There are still investors committed to either bitcoin and ether, he added, but as more “protocol-agnostic” investors enter the space, the more correlated these assets should be.
That is, at least until the space matures to where large investors are making very informed decisions about which protocol to invest in,” Doctor said. “Today such investors are in the minority, in my view.”
Specific catalysts, such as Ethereum’s Shanghai fork (which will activate staking withdrawals) could reduce correlations, along with the general maturation of the digital asset class.
But for the most part, bitcoin and ether are still one trade, he explained, drawing similarities between high correlation in airline stocks which can break down when one particular carrier faces a challenge.
Ether began outstripping bitcoin in 2020, but their correlation has since rebounded.
The evolution of bitcoin and ether’s correlation could map to three distinct phases, per Doctor:
Independent crypto projects with their dedicated market adherents (low correlation)
Institutional and retail investors with more passive strategies buying both tokens (high correlation)
More discriminating active strategies (lower correlation)
“At the moment, crypto investors at scale are still somewhat passive investors, rather than actively valuing and shifting between protocols based on an informed analysis of underlying fundamentals,” he said.
There’s another potential factor, beyond investor profiles: how crypto markets themselves have evolved.
Most crypto markets were once denominated in bitcoin
Nick Hotz, vice president of research at digital asset investment firm Arca, explained that in the ‘old days,’ there weren’t any trusted stablecoins (with Tether’sUSDT an exception in some cases).
This meant traders on the primary exchanges priced all assets against BTC. And in the early stages of ether’s life, it was considered just another altcoin that was “by and large traded against BTC,” Hotz said. This would have resulted in the assets being less correlated than today.
Hotz cited increased use of stablecoins USDC, USDT and DAI as quote assets as the biggest factor that drove up correlations for other cryptocurrencies relative to BTC across 2018 and 2019.
“A lot of big money now treats BTC and ETH simply as ‘risk,’ since they are the most liquid assets, and not as many trade their pair (ETH/BTC) anymore.”
Correlation streaks are becoming increasingly common.
The correlation of the two today is more representative of external risks, such as monetary policy, crypto adoption, institutional market structure and regulatory risk, Hotz added, rather than the fundamentals of the two cryptocurrencies.
He also cited trends among larger investors, which show them treating digital assets as just one sub-sector of technology. “Assets of the same sector should be highly correlated (see: equity sectors), but should Bitcoin be highly correlated to a token that provides utility in a video game? Probably not.”
Hotz added: “For them to trade independently, there needs to be recognition of BTC and ETH as separate assets with very different fundamentals. Either that or more institutional interest in differentiating the two by pair trading them, which I think is unlikely.”
Studying the correlation between the top two cryptocurrencies and the S&P perhaps reveals the real reason for the former’s tightening correlation: Everything is correlated with US-listed equities these days. Bitcoin and ether are simply no different.
“Periods when you see a spike in correlation [between BTC, ETH and the S&P] are often also periods when the market is risk-off, so correlations have risen across the board,” Doctor said.
Doctor highlighted major events like the 2020 Covid sell-off and the 2022 bear market, marked by increasing BTC and ETH correlation with the S&P: Risk-off markets beget high correlation between stocks and crypto. And markets are mostly risk-off right now.
Risk-off markets bring it all together.
Still, there are signs that crypto markets are starting to make industry-specific investment decisions, rather than pure macro plays.
Kaiko’s Aubert pointed to recently-shrinking correlation between bitcoin and equities markets. The tech-heavy Nasdaq’s 30-day correlation with BTC has declined from an average of 60% last year to between 20% and 30% this year.“
As more value enters Bitcoin and its usage as a store of value increases, it is likely that its correlation with tech equities declines,” Aubert said. “In contrast ETH’s correlation with the Nasdaq could strengthen as it is arguably more similar to tech equities (it’s a decentralized, composable smart-contract network).”
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FTX crumbled less than six months ago under the weight of sprawling corporate malfeasance, which amounted to billions of user dollars lost and waves of criminal charges against its executives.
The FTX dumpster fire — fanned by a series of tweets from Binance CEO Changpeng Zhao himself — burned particularly fiercely due to its cozy relationship with co-founder Sam Bankman-Fried’s market-making, venture investing sister firm Alameda Research.
Binance’s situation may be slightly different. FTX allegedly gave Alameda practically infinite credit to trade on the platform, funds which came from FTX users themselves.
The CFTC, in its recent indictment, hasn’t said Binance funneled funds to Zhao’s market makers in the same way.
Still, the apparent setup reeks of a familiar funk: Control the markets, own the market makers, then offer enough special privileges to render profiteering from users a sure thing.
So what did Binance do?
Binance has allegedly traded on its own exchange — against its own users — via around 300 so-called “house accounts,” which are directly or indirectly owned by CEO Changpeng Zhao.
Most of the CFTC’s charges relate to knowingly offering crypto derivatives (like perpetual swaps and futures) to US residents through Binance’s flagship international exchange.
But the agency also zeroed in on two of Zhao’s trading companies, Merit Peak and Sigma Chain, which serve as Binance market makers (supposedly neutral counterparties providing liquidity to keep order books running smoothly, earning profit from the spread).
The existence of these firms and their connections to Zhao were already known: Wall Street Journal reported in Feb. 2022 that the SEC was probing the two over Binance’s potential failure to disclose their relationship with the exchange and its founder to customers.
But the CFTC’s lawsuit gives further insight into how Zhao’s market makers allegedly operate on Binance.
Starting no later than July 2019 and until today, Merit Peak (registered to the Cayman Islands alongside Binance’s flagship platform) entered into and settled over-the-counter trades with Binance customers.
Swiss-registered Sigma Chain, on the other hand, handled proprietary trading on various Binance markets, including derivatives (the CFTC also said Zhao traded on Binance with two other individual accounts).
Sigma Chain’s prop trading activity was directed by Binance’s “quant desk,” the CFTC said. Quantitative trading desks rely heavily on mathematical models, often automated, to make market decisions.
Zhao accounts allegedly outside of insider trading policy
The agency noted Binance does not disclose to users that Binance trades on its own markets. Binance’s US platform currently states that the firm relies on third party market makers, some potentially related to the company, although it’s unclear when that wording was originally posted.
The CFTC said: “Consistent with its apparent attempt to keep its proprietary trading activity on its own markets top secret, Binance has refused to respond to Commission-issued investigative subpoenas seeking information concerning its proprietary trading activity on Binance, including transaction data and communications among the members of the Binance ‘quant desk.’”
The regulator claims that Binance does not include the trading activity of Merit Peak and Sigma Chain, its 300 house accounts nor Zhao’s individual accounts, in its anti-fraud or anti-manipulation surveillance.
Those accounts aren’t forced to abide by Binance’s insider trading policy debuted in January, either, with its house accounts allegedly completely exempt.
Welcome to crypto, where the money is made up and the conflicts of interest don’t matter — until the indictments roll in.
David is an Editor based in The Netherlands focused on data-driven journalism. Previously, he wrote for TheNextWeb’s crypto vertical before launching Protos in 2021. He’s a reformed hardline Bitcoiner passionate about permissionless and decentralized networks. Contact David at david@blockworks.co
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The SEC is back on Coinbase’s case and posturing to sue, sending the top US crypto exchange’s stock tumbling up to 20% this week.
It’s the third time Coinbase shares have tanked directly following actions taken by US regulators since Sept. 2021.
If you count last month’s SEC settlement with Kraken over yield-bearing, staking-as-a-service products (which Coinbase also offers), it makes four.
Coinbase’s share price dropped 12% on the same day as the Kraken settlement announcement, tumbled further to nearly 22%, before rebounding completely — all within a few days of trade.
Coinbase’s first Wells notice, issued in the second half of 2021 over its proposed plan to pay up to 4% interest on USDC deposits, appears to have had a more sustained effect.
Blockworks mapped major relevant regulatory actions against Coinbase’s stock price for up to one month following.
The firm’s share price dropped around 4% on the day it disclosed the Wells notice (which it had received in the week earlier). Those losses had doubled by the close of the next trading session, before reaching 19% down three weeks later.
Click the swatches to toggled lines on the chart | Chart by David Canellis
Back then, the stock sank 30% over the four following days, from above $75 to as low as $53. Still, it rebounded completely over the next few sessions — and then some, hitting $100 three weeks later.
As for this week’s Wells notice, Coinbase stock is now down 12.3% since just before its disclosure, similar to losses felt after Kraken’s settlement.
Billions wiped from Coinbase market value after SEC threats
Coinbase saw up to $11.3 billion wiped from its market capitalization in the month following 2021’s Wells notice, ahead of the $5 billion and $3.3 billion after the insider trading and Kraken reports.
So far, Coinbase has lost up to $2.3 billion from its valuation since its most recent SEC threat.
Of course, it’s tough to prove direct causation outside of the price collapses that have occurred on the same day.
Bitcoin price drops of up to 35% also happened in the 30 days following these regulatory actions, and Coinbase stock is often highly correlated with BTC markets.
Bitcoin’s performance is based on a myriad of external factors, arguably more influential than threats against a centralized public company like Coinbase.
But at least in the short term, agencies like the SEC surely aren’t helping Coinbase shareholders.
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On the romance front, SynFutures’ new NFT trading app, NFTures, probably can’t help. But its interface is no doubt familiar to anyone who’s been unlucky enough to use dating apps like Tinder and Hinge.
Swipe left to short the CryptoPunk. Swipe right to go long — with up to three times leverage either way.
It’s a hilariously degenerate way to think about NFTs. But it moves to reinforce personal taste at a time when NFT marketplaces are catering to high-volume traders.
Instead of gamifying speculation with impersonal aggregators, low fees and zero royalties, NFTures places the actual imagery tied to NFTs front and center.
Just like how potential dates instantly determine date-ability with one glance at a profile picture, traders can immediately wager whether a blue-chip profile picture NFT is overvalued or undervalued, with all bets collateralized and settled in ether (ETH), all on-chain via browser wallet MetaMask, among others.
NFTures (a portmanteau of “NFT” and “futures”) is currently in alpha, and went live this morning for a portion of SynFutures’ waiting list. The list has so far garnered around 14,000 signups, chief marketing officer Mark Lee told Blockworks, with a few thousand now able to start swiping.
Users won’t be longing or shorting fully-fledged NFTs, which in the case of Bored Apes and CryptoPunks cost upwards of 58 ETH ($100,000). NFTures instead offers exposure to a basket of floor price CryptoPunks via a SushiSwap price oracle.
Are you into this CryptoPunk? Click the heart to go long | Source: SynFutures
The basket of CryptoPunks is an NFTX treasury filled with 135 NFTs, all equally valued. The treasury is effectively a floor-price CryptoPunk index fund.
Users deposit their NFTs in return for an ERC-20 vToken, PUNK, which represents claim on a random NFT contained within the treasury. Those tokens can then freely be exchanged, or even used to access a special Curve pool for further leverage.
By indexing those CryptoPunks, NFTX offers an alternative to floor prices (the lowest-valued NFT in a collection). Floor prices can be easily gamed: wash trading far below the lowest going price can immediately tank them, opening up all sorts of concerns for leveraged positions.
PUNK, on the other hand, trades on decentralized exchanges SushiSwap and Uniswap, allowing better price discovery on that particular collection. SynFutures new app offers exposure to that spot price, rather than transacting any individual CryptoPunks.
SynFutures plans to add more NFTs treasuries in the future, with Bored Apes and Pudgy Penguins and other top-10 collections floated as potential candidates.
Ethereum for NFT derivatives, Polygon for crypto
Another advantage of offering exposure on an index, rather than actual NFTs, is that it opens markets up for smaller bids. Trading CryptoPunks directly demands six-figure capital, but NFTures allows much smaller positions to be taken.
There are other concerns. Positions are all settled on Ethereum, which has recently experienced an uptick in usage, translating to increased transaction fees.
Trades on the app cost around $10 in gas fees right now and, to begin with, the app only allows users to take a fully-collateralized position worth up to 0.1 ETH ($168), eating into potential upside.
“It’s important for us to increase the position size. If the position size is too small, there’s just not enough financial incentive for someone to pay these fees,” SynFutures’ Lee said.
Liquidity can also be a problem on DEXs, especially for more exotic derivatives like these, resulting in unavailable trades and slippage.
Similar to SynFutures’ primary protocol, which supports futures trading for certain cryptocurrencies, NFTures is bootstrapped by capital provided by some of SynFutures’ strategic partners. The two platforms are completely separate, with separate liquidity pools, but NFTures does use SynFutures’ trading infrastructure.
“It all comes down to demand, which is why we’re doing it in phases. If we opened it up for everyone and there wasn’t enough liquidity, that would be an issue,” Lee said. “So we just want to make sure we monitor our liquidity, make sure it’s able to support the demand that comes in.”
Lee noted that as more demand comes into the app, the firm will expand liquidity either internally or through some of its external partners. The first couple of thousand on the waitlist have been given access first, and every week SynFutures will continue to open access.
SynFutures opted for Ethereum rather than its native Polygon to power its NFT app, despite the fees, as it doesn’t anticipate people coming in and out of positions too much, unlike actual crypto derivatives, which demand higher volume.
“All of the popular NFT collections — the major ones that actually have enough liquidity and market depth — also happen to be on Ethereum,” Lee said.
Tinder for NFT leverage, a gateway to DeFi
Lee expressed that NFT trading isn’t meant to be like crypto derivatives trading, which at the top end is typically earmarked by high volume.
By creating a trading platform in the style of modern dating apps, SynFutures hopes to attract a wider audience than only seasoned NFT traders.
“NFT prices don’t change that much anyway, so this is really more a mid-term bet that you’re making. You’re saying: ‘Okay, I think in the next month or two, I see CryptoPunks dropping, so I’ll open a position here,” Lee said.
Other startups are building NFT derivatives products, too. NFTPerps is currently in private beta on Ethereum Layer-2 network Arbitrum, for one, but that’s pitched towards more crypto native speculators.
Lee sees NFTures serving a different purpose: introducing the broader NFT collector audience to the idea of DeFi. That means making them comfortable with the idea of speculating on NFTs in other ways than by simply buying and holding them.
“If you’re holding a piece and you don’t necessarily want to get rid of it, you could open a short position to cover some of your downside risk,” Lee said. “We call NFTs a gateway into crypto, we want this product to be a gateway into DeFi.”
Then again, some NFT collectors are in love with their JPEGs. Shorting them would just be rude.
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Ava Labs hired Justin Kim and Roi Hirata to lead its businesses in South Korea and Japan, respectively, in new roles created as part of the Avalanche blockchain developer’s push into the Asia Pacific region.
Kim was previously an investment banker at Korea Development Bank for more than 13 years.
“As Korea is home to multinational conglomerates, leading gaming companies and highly crypto-native demographics, we have so many opportunities on the horizon,” Kim said in a statement.
Hirata previously founded two startups and was working in an advocate role with Chainlink Labs in the Japan and Singapore regions until January.
He joins as Japan’s number of on-chain transactions doubled year over year from July 2021 to June 2022 relative to the previous year, according to Chainalysis.
Ari Redbord, head of legal and government affairs for blockchain intelligence firm TRM Labs, was named vice chair of the Commodity Futures Trading Commission’s (CFTC) Technology Advisory Committee.
The new committee is tasked with taking on issues at the intersection of technology, law, policy and finance. Redbord will give opening remarks in the decentralized finance section of the committee’s inaugural meeting on March 22.
Redbord was assistant United States Attorney for the District of Columbia at the Department of Justice from 2008 to 2019, according to his LinkedIn profile. He went on to become senior advisor to the under secretary for terrorism and financial intelligence at the US Department of the Treasury.
“Contributing to conversations that serve to develop crypto-related regulatory standards and encourage a more open financial system while thwarting bad actors and illicit activity is our primary focus,” he said in a statement.
The announcement came as TRM Labs added Chris Brummer as a senior adviser.
Brummer, a Georgetown law professor with a focus on how policy makers and industry can build regulatory frameworks for DeFi and blockchain-based technologies, is set to help the company find ways to make finance more inclusive.
TRM Labs’ new senior adviser is an advisory council member for blockchain, crypto and digital currencies at PayPal. He is also a senior adviser at crypto-focused investment firm Paradigm, as well as a board member of K2 Integrity and Fannie Mae.
Execs formerly at Crypto.com, Coinbase move to exchange
Crypto platform Okcoin has appointed new leaders as part of global expansion efforts.
The company hired Erald Ghoos as general manager of Okcoin Europe and David Renold as CEO of OKG Payments, the company’s Ireland-based affiliate.
Ghoos previously was chief operating officer and chief compliance officer at Crypto.com — a dual-role he was in from 2017 to 2020. He started his career at AXA Bank Europe as an engineer and then program manager.
Renold formerly held leadership roles at Coinbase, including operations lead of e-money up until last month. The executive also spent about 20 years at UBS, ending his tenure there in 2018 as head of international payments and cash management.
Blockchain firm Enjinstarter hired Vasseh Ahmed as a managing director for the Middle East and North Africa region.
Founded in 2021, the Singapore-based company has launched more than 50 Web3 projects. It now seeks to add more, with a focus on complementing the UAE’s focus on impact and sustainability initiatives, the company said.
Up until January, Ahmed worked as head of digitization strategy at Dubai-based digital bank Zand.
Anthony Tsivarev joined the TON Foundation as director of developer relations.
He joins the foundation from First Stage Labs, a venture builder for TON-based projects. Tsivarev is set to lead the development of the TON ecosystem across DeFi, dApps and social applications.
Blockchain analytics firm Crystal appointed Jordan Alexander as its new associate director of product.
The Amsterdam-based company builds products that look to streamline crypto compliance operations and aid investigations into financial crime. Alexander’s hire signals the firm’s effort to enter the US market, according to the company.
Alexander was previously a product lead at cybersecurity software company Avast, where he designed solutions to identify and combat security threats.
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Bankrupt crypto lender Voyager has almost finished liquidating its monumental crypto portfolio in a bid to make customers whole — but it still has about $166 million to go.
Blockworks compiled Arkham Intelligence data to recreate Voyager’s crypto holdings as of Jan. 1 — just days before it significantly ramped up deposits to crypto exchanges — to see exactly how the process has gone.
Voyager has so far pulled $433 million in stablecoins (mostly USDC and a small amount of USDT) from crypto exchanges Coinbase and Binance US year to date, having initially sent mountains of ether (ETH), polygon (MATIC) and shiba inu (SHIB), among dozens of other tokens.
An additional $18.2 million USDC was received from market maker Wintermute, which also runs an over-the-counter trading desk. Voyager has sent Wintermute amounts of ETH, SHIB and MATIC, as well as smaller amounts of sushiswap (SUSHI), aave (AAVE) and yield games guild (YGG).
(For the purposes of this report, crypto sent to exchanges is considered “sold.”)
Voyager at the start of the year:
held about $546 million in Ethereum-bound crypto across dozens of tokens; with
ether making up 46% of those funds, followed by USDC (15%) and SHIB (13%); and
kept 187.7 million VGX (then worth $56 million), 10% of its Ethereum token portfolio.
Ether made up most of Voyager’s portfolio at the start of the year. Not anymore. | Chart by David Canellis
As well, 6,905.61 BTC ($171 million) sat in a Bitcoin address that once handled some Voyager withdrawals until Wednesday, when it was sent to an external address which has been linked to Coinbase. It’s unconfirmed whether the address belongs to Voyager’s estate, so it’s currently excluded from the charts. Blockworks has reached out to Voyager’s bankruptcy lawyers Kirkland & Ellis for comment.
Voyager already sold all its MATIC, worth $53M
Binance’s US arm has fought for the right to acquire Voyager’s assets. The firm filed for bankruptcy last July under the weight of exposure to Three Arrows Capital and associated market volatility around that time, initially triggered by the demise of algorithmic stablecoin Terra.
Voyager said it had $1.3 billion in user crypto to liquidate at its first day bankruptcy hearing in July 2022, although an exact breakdown of its portfolio wasn’t provided. Considering the volatile and illiquid nature of some cryptocurrencies tied to Voyager’s estate, it’s likely their true value was much lower. Voyager also may have other assets on other blockchains not contained in this analysis.
Still, Voyager spent the following months hoovering crypto from various blockchain addresses to two primary Ethereum wallets. Initial estimates suggested Voyager has upwards of 100,000 creditors, to whom Voyager owes between $1 billion and $10 billion.
Toggle the chart between total value sold to date and percentage of stake sold | Chart by David Canellis
As of this Wednesday, Voyager had 52,553 ETH ($86.7 million) left in its addresses, which means it has sent 75% of its initial ether stash for liquidation. And by raw number of tokens (not including stablecoins), Voyager addresses have sent almost 66% of all its cryptocurrency to exchanges so far this year.
The firm has already deposited all of its MATIC, BNB, ontology (ONT), ocean protocol (OCEAN), wrapped bitcoin (WBTC) and yearn finance (YFI) to exchanges, holdings which together were worth $42.5 million at the time of their outflows, nearly all of that MATIC.
Loads of shiba inu still left to unwind
Ether aside, Voyager’s largest non-stablecoin holdings are now SHIB and VGX. Its addresses started the year with 9 billion SHIB and 181.8 million VGX — worth $73 million and $54.3 million at the time, respectively.
Voyager has since sent almost 66% of its SHIB to exchanges, alongside 69% of its VGX. But thanks to increased crypto prices, Voyager’s remaining SHIB is still worth $32.6 million and its VGX $18.2 million.
Voyager has sent $53M VGX to exchanges, $18M left to go | Chart by David Canellis
VGX was intended as a utility token that also paid loyalty rewards. Users could pay for withdrawal fees and the like with VGX while earning tokens by referring new users, staking VGX and even as cashback rewards via Voyager’s debit card.
But with Voyager now defunct, VGX’s value proposition is effectively moot, much like other ‘zombie’ coins.
So much selling might suggest that Voyager has been influencing token prices downward, but it doesn’t seem so.
Practically every token of which Voyager has offloaded a material amount of crypto has seen increased prices since Jan. 1, despite all the liquidations.
Voyager’s ETH deposits to exchanges have ramped up over the past week | Chart by David Canellis
All in all, Voyager’s bankruptcy estate has done quite well. What was a near-$550-million crypto portfolio is now worth $700 million — after selling two-thirds of those assets.
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Ethereum now commands two out of the top 10 market cap spots, after the premiere ETH staking derivative flipped Binance’s stablecoin earlier this week.
Lido Staked ETH (stETH) is now worth more than $10 billion, per CoinGecko, eclipsing Binance USD (BUSD), which now has only $8.4 billion in circulation.
BUSD had about double that at the start of the year, ranking it in seventh place, slightly behind XRP.
Its issuer Paxos has faced compounding redemptions after a Wells notice from the SEC claimed the stablecoin represents an unregistered securities offering.
Click play to watch stETH flip BUSD and enter the top 10 | Chart by David Canellis
Like other liquid staking providers, Lido allows ether holders to stake their ETH in return for a separate derivative token, stETH.
Staking directly to the Ethereum blockchain without services such as Lido requires 32 ETH ($56,500) to operate a staking validator node. All staked ether cannot be withdrawn until the network’s next big upgrade, Shanghai, goes live next month.
StETH turns ETH staked via Lido into an immediately liquid asset, which can either be traded on crypto exchanges, lent out or used as collateral for loans across DeFi protocols.
The token is backed by ether locked in staking, but its price isn’t directly pegged; stETH has wavered from ETH parity at times.
Lido also automatically pays stETH holders daily staking rewards passed down from the Ethereum blockchain. There’s currently just shy of 5.6 million ETH ($9.9 billion) staked inside Lido’s protocol (excluding interest), according to Nansen, up 150% from around 2.3 million ETH ($4.1 billion) one year ago. Etherscan shows more than 171,000 wallet addresses hold stETH.
Meanwhile, ether dominance — which measures how much of the crypto market is ETH — hovers a touch under 20%, while bitcoin dominance is almost 46%.
Ether liquid staking derivatives find product-market fit
The earliest ETH stakers locked their tokens in the proof-of-stake Beacon Chain back in Nov. 2020, when ether was less than $450.
ETH has since rallied as much as 1,000%, reaching a high of $4,878 one year after the Beacon contract went live, before dropping 64% to under $1,800 today.
ETH goes up and down, but the number of ETH staked in consensus can only increase (for now)
More than 17.6 million ETH ($31.3 billion) has been staked, representing nearly 15% of the circulating supply.
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Bank stocks are crashing, not just in the US, but around the world. Bitcoin, meanwhile, is surging.
In fact, bitcoin (BTC) is now easily outperforming practically all top US bank stocks year to date, including JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C).
Bitcoin is up more than 47% this year. After this morning’s monster bank stock dump, JPM and WFC are now in the red for 2023, down 2.2% and 6%, respectively.
Nasdaq’s BANK index — which includes dozens of US-listed bank stocks — has dropped more than 20% across the same period.
All the banks are trending down. Bitcoin is trending up | Chart by David Canellis
Granted, zooming out to the past year paints a slightly different story.
The top crypto by market value has lost almost 36% since Mar. 2022. Bank stocks have also tanked across the same period, just not by as much — BANK has shed 34% over the past year.
JPM, the largest weight in Nasdaq’s banking index, is somewhat of an outlier, up just under 3% over the past year | Chart by David Canellis
Once we hit the five-year charts, bitcoin once again dominates bank stocks. BTC has jumped 166% since this time in 2018 — going from $9,120 to $24,245.
Top bank stocks such as Discover Financial Services (DFS), Popular (POP) and JPM are also in the green over the past five years, but far less — between 12.8% and 31%.
Of course, bitcoin has a long way to go to reclaim its all-time high set in November 2021. BTC would need to rise 185% from here to retest $69,000.
JPMorgan actually set its own intraday record high around one month earlier than bitcoin: $172.96. The stock would only need to rise 31% from here to reach similar levels.
BANK, on the other hand, is down 26.4% | Chart by David Canellis
So, bitcoin may be far more volatile, even withstanding today’s bank stock crash.
At least for today, markets seem to have gravitated towards a decentralized monetary network built in defiance of fractional reserve systems — a clear win in a lengthy and dreary bear market.
Binance not banking fears?
There could be another reason: Binance market-buying bitcoin, binance coin (BNB) and ether (ETH) with $1 billion in BUSD.
CEO Changpeng Zhao flagged the move on Twitter late Sunday, which he said was due to “changes in stablecoins and banks,” referencing a recent string of failures at crypto-friendly banks.
Given the changes in stable coins and banks, #Binance will convert the remaining of the $1 billion Industry Recovery Initiative funds from BUSD to native crypto, including #BTC, #BNB and ETH. Some fund movements will occur on-chain. Transparency.
“Binance’s $1 billion purchase definitely has a price impact, but is probably not the driving factor in the upward move,” Matt Fiebach, Blockworks Research analyst, said, pointing to the comparatively large $50 billion in volume for both bitcoin and ether over the past 24 hours.
Zhao didn’t say when Binance would begin the market buys, so any related upward pressure could simply be the market front-running Binance’s plan, Blockworks Research’s David Rodriguez added.
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Silvergate is over. Investors are likely sad, short sellers probably grinning, but 11 insiders at the one-time major crypto bank sold out big at the top — raking in more than $103 million.
Former chairman Dennis Frank, who led the board between 1996 and 2021, made up about 25% of those sales.
Frank sold almost 189,000 shares between March and November 2021 for $140 each, on average. That was peak bull run, when bitcoin was worth as much as $69,000 and Silvergate stock as much as $220.
Silvergate stock now trades for under $4. It announced this week it would close down for good and enter liquidation. The firm had struggled to maintain customer confidence after one of its key clients, FTX, went belly up last November, leading to billions in withdrawals.
Executive vice president Derek Eisele and CEO Alan Lane also cashed out stock at the top, $20.6 million and $17.1 million, respectively, per OpenInsider data, which relies on SEC filings.
Other sellers around that time include Chief Strategy Officer Ben Reynolds ($2.5 million) and Chief Operating Officer Kathleen Fraher ($2.8 million).
(For the purposes of this article, “selling the top” was liberally defined as being between two dates: Jan. 1, 2021 and May 1. 2022 — which captures bitcoin starting out at $30,000, two major price peaks and its return to $30,000.)
Silvergate insiders clustered their sales at the top, getting around $133 per share on average
Altogether, the value cashed out by Silvergate insiders at the top represents 4% of the firm’s average market capitalization ($3.6 billion) throughout the crypto market peak.
Some had bought stock on the way up, particularly CEO Lane and director Thomas Dircks, who’d spent nearly $250,000 on 167,477 shares in Nov. 2019, spending on average $12 per share among smaller trades on other dates.
Lane later sold nearly 178,000 shares for $18.6 million between Jun. 2021 and Jul. 2022, for an average price of $104.75 — nearly 800% above his earlier average purchase price (Lane, along with other executives, continued to receive stock options throughout this period).
One executive, Michael Lempres, tried to buy the dip, spending $56,100 in Feb. 2022 on 500 shares. Those same shares are worth $2,000 today. He hasn’t yet disclosed any sales with the SEC.
Silvergate insiders are not alone
Together with executives at direct rival Signature, bitcoin-hungry software firm MicroStrategy and miners Marathon and Riot, 34 crypto insiders sold $661.4 million in shares as markets topped during the last bull run, averaging out to almost $20 million each.
Some sales were part of pre-lodged trading plans with the SEC (but not all). And that’s not even counting Coinbase, which went public as markets frothed in Q2 2021.
Bitcoin-forward fintech Block (SQ) saw $151 million in insider selling across the same period
Coinbase execs together cashed in more than $5 billion on its first day of trading alone, although those sales were a function of its direct listing, so shouldn’t be compared to the other stocks.
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If FTX was a butterfly flapping its wings in the Amazon rainforest, “Operation Choke Point 2.0” is the torrential rain now pouring down over the US crypto industry.
Biden’s White House, the Federal Reserve, the OCC, FDIC and the DOJ, alongside “influential members of Congress” are all in cahoots; hell bent on yoinking crypto’s fiat access to suffocate the industry once and for all.
That’s the theory posited by long-time crypto supporter and venture capitalist Nic Carter.
Carter’s post, “Operation Choke Point 2.0 Is Underway, And Crypto Is In Its Crosshairs,” outlines a string of bearish headlines, which when added up, seem to indicate a concerted, government-backed effort to discourage traditional finance institutions from servicing the crypto industry.
Fiat on- and off-ramps are logical first targets. A letter to Silvergate from Sens. Roger Marshall, Elizabeth Warren and John Kennedy preceded rival Signature halving the total value of crypto-related deposits in December.
Then, a January joint statement from the FDIC, OCC and Federal Reserve “strongly discouraged” banks from supporting crypto seemed to beget Metropolitan Commercial Bank completely shutting down its crypto-related business lines.
Even plans for a crypto-native company to control its own fiat destiny have all but unraveled at the hands of the US government, as the Fed formally denied crypto bank Custodia’s (formerly Avanti) application to join the Federal Reserve system in late January. The application had been processing for more than two years.
And while crypto custodian Anchorage became the first (conditionally approved) National Trust Bank in 2021, other firms including Paxos and Protego haven’t yet been given a similar greenlight.
Carter wrote that labeling crypto-facing banks “high risk” has four direct effects: higher premiums with the FDIC, lower cap rate with the Fed (inhibiting ability to overdraw), restrictions on other business activities and the risk of a poor examination score with regulatory supervisors (inhibits M&A ability).
The first Operation Choke Point showed their MO
Ring-fencing US crypto — separating it from sorely needed banking rails — echoes the DOJ’s Operation Choke Point from last decade, Carter says.
Sometime in 2013, the DOJ came out with an eerily familiar goal: by way of red tape, cut off undesirable business sectors from the banking system, ones with a risky reputation for money laundering and fraud, predominantly payday lenders.
“Operation Choke Point has had a demonstrable chilling effect on commerce,” wrote Iain Murray for Competitive Enterprise Institute in a report Carter cites.
“Most such banks cannot afford the extra supervision that comes with a Choke Point subpoena. Thus, they often face no other choice but to drop payment processors and designated ‘high-risk’ clients altogether.”
Murray worried that other politically undesirable industries, such as cannabis dispensaries or abortion providers, could be similarly targeted in the future, regardless of their legal status.
But Operation Choke Point was a years-long campaign behind the scenes to influence the health of particular industries. Carter has instead argued that the crypto sequel is happening before all of us, in plain sight.
So, when suspiciously Choke-Pointey headlines crop up — like Bybit suspending US dollar deposits, or Circle ceasing automated clearing house payments — it seems logical to draw a line straight to the Feds behind the curtain.
Either way, crypto has it tough
It’s worth stressing that, at this point, there’s no tangible evidence of a government conspiracy to leverage risk premiums to cut crypto off from US banking rails.
But whether they’re all in on it together may well be moot. US lawmakers, regulators and assorted agencies are noticeably staunch in their crypto pessimism of late. Their individual efforts could very well outweigh the potential sum of their efforts, say, in some sweeping secret government mission.
All this begs the question: what would it take to unwind all things negative for crypto’s banking status since FTX — be they part of Operation Choke Point 2.0 or something more organic.
Make no mistake, this Operation Chokepoint 2.0 is an extreme overreach from the banking regulators, and they should expect to hear from Congress soon.
“Administration change is really the only thing,” Carter told Blockworks. “There’s consensus in the Biden administration, and among the bank regulators, that crypto should be marginalized.”
How the first Operation Choke Point played out does offer some hints. A Congressional investigation into the campaign eventually brought it to a formal end in 2017.
“So it’s possible the House could ask questions about the overreach here,” Carter said.
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The true market cap of OKB, the native token of crypto exchange OKX, is a mystery.
On CoinGecko, the token is worth $12.4 billion, ranking it the seventh largest cryptocurrency. But on CoinMarketCap, OKB is pegged at a ‘mere’ $3 billion.
So which is it?
Calculating market capitalization for a crypto asset seems a simple task. Multiply the circulating supply by the price of the token — right?
But as the case of OKB demonstrates, there are complex factors that ensure the market capitalization of a specific crypto asset may be a far more subjective metric than the cold data suggests.
A deep investigation into the true value of OKB reveals that even a term as simple as ‘circulating supply’ is wide-open to subjective interpretation — and that for investors, the figures presented in good faith by data providers on crypto asset values should occasionally be taken with a very (very) large shaker of salt.
The curious case of OKB’s missing $10 billion
Six months ago, OKB was around the 20th biggest cryptocurrency by market cap, a peer to the likes of Ethereum Classic (ETC) and Litecoin (LTC).
Today, it’s easily ahead of Polygon (MATIC) and Dogecoin (DOGE). It recently flipped Cardano (ADA), having surged more than 200% since November, when FTX was collapsing.
The $10 billion difference comes down to how the two major data aggregators, CoinMarketCap and CoinGecko, calculate OKB’s circulating supply.
Crypto market capitalizations, echoing equities, are found by multiplying unit price by the number of units in circulation (different to fully-diluted value, which focuses on the total theoretical supply).
OKX says OKB’s circulating supply is about 246.6 million, a figure CoinGecko reports.
The math: current total supply is 300 million, minus 53.4 million locked inside OKB’s so-called “buy-and-burn” address, used to store tokens it removes from circulation to boost its value proposition (less supply on the market means more scarcity, and thus more implied value).
CoinMarketCap, on the other hand, says OKB’s circulating supply is just 60 million. The difference between the two supply readings essentially gives us the imbalance in market values.
Interactive: Click play to watch OKB leap from lower than 30th to top 10 in under one year.
In the next section of this analysis, we dive deep into the specific mechanics of how OKX’s token raises questions over whether or not it should be counted as fully-circulating.
If you want to skip the analysis and head straight to the conclusion… jump here.
90% of OKB ‘circulating supply’ doesn’t circulate at all
OKX distributed its ERC-20 token beginning with an initial issuance in Apr. 2019.
About 220 million OKB has been sent from an OKX hot wallet to tens of thousands of blockchain addresses that have never seen any transactions at all — except to receive OKB.
Over a three month period starting from late Dec. 2019 and concentrated in a rapid-fire 10-day stint in Feb. 2020, streams of brand new, but since totally unused, Ethereum addresses received packages of between 100 and nearly 20,000 OKB.
The supply spread across entirely inactive Ethereum addresses amounts to almost 90% of OKB’s claimed ‘circulating supply’ of 246.6 million tokens, and in total is valued at more than $12.3 billion, given the current unit price of ~$50.00.
The OKB was sent directly from the main OKX hot wallet, which the exchange uses to maintain user balances and other operations — the same hot wallet that first received the 300 million OKB ERC-20 supply in 2019.
For the purposes of this analysis, addresses and OKB supply were labeled ‘dormant’ if:
Total OKB received from OKX hot wallet matches the current balance (supply only came from OKX, and it’s still there).
Outputs are zero (the address has never been used to send cryptocurrency).
ETH balance is zero (the address does not have any ETH to pay for gas fees).
If we consider this supply not circulating — and thus not part of its market capitalization — it would mean OKB’s true circulating supply is vastly inflated, along with its market cap.
Another 11.1 million OKB is kept inside similarly brand-new Ethereum addresses that have never seen any activity at all, except around Feb. 2020 to receive OKB from OKX and later a small amount of ETH (0.0084 ETH), usually deposited from an address tagged as “OKX: Deposit Supplier.”
For the purposes of this analysis we don’t consider this supply dormant as it has enough ETH to withdraw the OKB tokens.
‘Dormant’ OKB receivers look like this one, which has $914,000 in OKB. Organic OKB receivers look like this, with activity often spread across multiple tokens
Another 18% has been “burned,” and the remaining 9% exists between a few OKX hot wallets and other addresses with enough ETH to pay for gas fees.
Excluding the “dormant” supply from OKB’s circulating supply would mean:
Implied market value is less than $1.3 billion, currently the 40th biggest cryptocurrency.
Total market cap would be about 30% less than rival Crypto.com’s CRO offering and 60% more than Huobi’s HT token.
When is circulating supply not circulating supply?
A large percentage of bitcoin’s total supply is also considered dormant — in 2020, nearly one third of the total bitcoin supply hadn’t been touched in more than three years.
But we still consider that dormant bitcoin supply to be circulating. How OKB differs is that a single party controls that supply and that party is also the token’s primary issuer and steward.
(We note OKX’s response to this apparent dichotomy below, specifically their assertion that they hold these balances on behalf of customers and that in the event of a mass redemption event, those tokens could be retrieved from the ~31,000 wallets they describe as cold storage.)
“The circulating supply of OKB is [246.6 million]. OKB is fully circulated, and OKX doesn’t control the performance of OKB in any way,” an OKX spokesperson told Blockworks.
Interactive: Click the swatches to toggle supply types on the chart. The major purple spike shows the sudden distribution of the majority of OKB’s circulating supply.
OKX representatives spoke with Blockworks on two occasions to understand the questions we had on circulating supply, and they offered a written response, shared here in full:
“This transfer was part of our tokenomics and security strategy. Based on research conducted by our team for over a year and as a result of user demand and feedback, we made the decision to move OKB from the hot wallet to the cold wallets. Specifically, we saw that the majority of OKB trading that occurred during that time – more than 95% – occurred on the OKX platform.
The decision was therefore made by the technical team to move the OKB from hot wallets to cold wallets. This allowed us to increase the security around the OKB supply, while also allowing users to continue to trade OKB on the OKX platform. It’s important to note, that there is still a supply of OKB which is in hot wallets that can be used as needed to facilitate user withdrawals.
These wallets are currently only being used for storage of OKB and there is no user demand to move the tokens. Should withdrawal demand increase, OKX would add ETH to the wallets to facilitate any necessary transfers.
We have very loyal customers who hold OKB. User withdrawal demand has to date not exceeded the amount held in our hot wallets and that is why these wallet balances remain static.
As stated above, there is OKB in hot wallets to facilitate user withdrawals where necessary. Should withdrawal demands increase, we would simply move the OKB from cold to hot wallet to facilitate any withdrawal request as necessary. Based on our experience and the demands from users over the past several years, we’ve not seen large enough withdrawal requests to move the tokens from the cold wallets.”
Dormant address balance distribution is also unusual: The amount of OKB in each of these 31,000 wallets is very evenly distributed between 1 and 20,000.
By way of explanation, OKX further stated that the balances were not mapped one-to-one, indicating that the 220 million dormant supply represents an aggregate of user balances. It’s not clear how many users the dormant tokens belong to. Blockworks has asked for clarification.
Charts show distribution of token balances across Ethereum addresses (excluding top and bottom 15% of supply to filter outliers) Data sources: BitQuery, Convex Labs, Ethereum blockchain
Blockchain data appears to line up with OKX’s explanation: Between Apr. 24 and Apr. 27, 2020 — about two months after 90% of circulating supply was sent to cold storage — 40 million OKB (16% of circulating supply, then worth around $180 million) was pulled from more than 1,400 addresses to the OKX hot wallet. Those addresses share identical activity profiles with the ones still containing dormant supply, except for the outgoing transactions to OKX.
The OKX hot wallet, with a current balance of almost 3.9 million OKB ($196 million), would not see another OKB deposit from cold storage or regular users until nearly nine months later, in Jan. 2021.
The dormant supply was systematically distributed. It would take an equally systematic effort to retrieve that supposedly circulating supply.
According to OKX’s statement, the exchange would need to send a small amount of ETH to pay for withdrawals, access the private keys of each cold storage address, and then send OKB back to its hot wallet, which could then service a surge in OKB withdrawals upon request.
Some amount of the dormant OKB supply is required to back user balance. But it seems not all of it. And the amount in play will constantly morph depending on how much OKB each OKX user has on the platform, which could be used to pay for trading fees, buy NFTs and access leverage products.
This would obviously impact OKB’s true circulating supply. And a lower market cap for OKB would make a certain amount of sense.
No other pureplay crypto exchange token is worth more than $2 billion (excluding Bitfinex’s LEO, a debt token, as well as Uniswap’s UNI, which doubles as a DAO governance token).
Binance’s BNB is also a major outlier. It’s worth significantly more than any other exchange token, with a $40 billion market value. However, BNB also powers the Binance-branded Layer-1 blockchain, BNB Chain, which gives it a use-case beyond reducing trading fees, so they can’t be compared directly.
Nick Bax, head of research at blockchain R&D unit Convex Labs, told Blockworks: “I’ve looked at a lot of exchanges and their cold wallets on-chain and this is the first time I’ve seen a scheme with a distribution of amounts like this. Of course, every custom-made cold wallet is different.”
“It’s reasonable for them to withhold details on their security and private key storage but from a transparency perspective this creates a massive information asymmetry.”
What CoinGecko says
When initially quizzed over CoinGecko’s methods of calculating OKB’s supply, a spokesperson said “From our checks these tokens do meet our definition of circulating supply, as they appear to not be locked and are able to be traded at any time.”
After Blockworks shared this analysis, CoinGecko added that they are currently assessing the information available, which includes reaching out to OKX for clarification to form a more complete understanding.
“At CoinGecko, we are committed to empowering our users with unbiased and accurate information so they can make better-informed decisions. This is why we share our Methodology, including how we calculate circulating supply,” they said.
“We recognize that some data may not be best represented in the same way and we are seeking a more complete understanding before making any decisions.”
What CoinMarketCap says
Which leaves CoinMarketCap, which reports a circulating supply of 60 million OKB (exactly 20% of the amount claimed by OKX), thereby valuing it at a much lower figure than CoinGecko, at $3 billion. (It is also noted that CoinMarketCap is owned by Binance — and that OKX is a key competitor to the world’s largest exchange.)
“Much like you, we subscribe to the adage, ‘don’t trust, verify’ by cross-referencing (blackbox) API figures with on-chain wallet balances,” CoinMarketCap ecosystem lead Aaron K (AK) told Blockworks.
“The figure was verified some time ago. Verification is done on a best efforts basis, and typically entails the completion of this form so that we have some visibility into how their API figures are derived so as to ensure that it does not substantially deviate from our methodology.”
AK then said CoinMarketCap is in dialogue with the OKX team to verify how they’ve derived their “revised and substantially larger” figures in their new API endpoints. “Our decision on whether to update the verified figures will be contingent on their ability to provide the requisite documentation.”
With billions in perceived value riding on these nuances, CoinMarketCap’s AK told Blockworks it focuses on a “risk-based approach and relies on heuristics to estimate the circulating supply for projects.”
“Anyone can tell us that their project has a putative market cap of USD 164 billion and it would be expedient for us to publish that figure without any critical analysis,” they said.
“In fact, many actors in this space have every incentive to resort to all kinds of chicanery to inflate their circulating supply and/or market cap, which could displace honest projects from our rankings page.”
Interactive: After removing dormant supply from its market value, OKB would the third-largest native crypto exchange token, behind Bitfinex’s LEO and Crypto.com’s CRO
Many crypto projects demand CoinMarketCap allow them to “grade their own homework,” a bid to have their rank on the site dictated by their self-reported circulating supply. “But we still think that it is worth striving to apply a consistent methodology, however imperfect, difficult, or politically inexpedient it may be,” AK said.
So, how does dormant supply kept in cold storage factor into those efforts? Based on Blockworks’ analysis, CoinMarketCap acknowledged grounds to consider revising OKB’s circulating supply figure — although generally it gives projects an opportunity to explain the situation.
“Prima facie, there is a case to be made that the distribution of 89% of OKB from a single hot wallet to brand new wallets in equal sizes are likely to be dormant (and therefore not circulating) due to the lack of transactions and ETH for gas fees,” they said.
Not insinuating foul play
In OKB’s case, CoinMarketCap said it would decide whether to publish an updated verified circulating supply figure depending on its ability to “verify the data with a reasonable level of confidence or assurance.”
“A large jump in notional market cap (and rank) is generally one of the reasons for us to be circumspect in acquiescing to a project’s supply update, even if it means being on the receiving end of public vitriol for ‘ostensibly inaccurate’ circulating supply figures,” K said.
CoinMarketCap offered three extra steps that should be layered into any supply analysis:
Assuming the asset’s trading venues are equally credible, is the revised figure commensurate with the asset’s liquidity and volume profile? Some analysts have highlighted the massive differences (32x) in order book depth between OKB and DOGE despite the former’s insistence that their capitalization should be reported similarly.
Do we have reason to doubt the revised figures due to irregularities in the project’s documentation and explanations?
Do we have reason to suspect that the project is trying to game its ranking through artificial wallet movements and misrepresentations?
“For the avoidance of doubt, we are not insinuating foul play for this particular case, though point 1 alone is sufficient to give us pause in taking OKB’s revised figures at face value,” the spokesperson said.
“In short, we believe that our more circumspect approach, despite being politically inexpedient, lends more credibility to our rankings/figures compared to a certain other data aggregator which claims that cUSDC has a putative market cap of $0.6B despite having a 24 hr volume of … $3.”
They then noted how much harder this process will be as more projects issue tokens across multiple chains, increasing the complexity of supply verification.
A ‘never-ending rabbit hole’
We’ve established that calculating supplies and market capitalizations is harder than it seems. In fact, CoinMarketCap stressed the importance of recognizing that those figures are “fundamentally approximations derived from available information.”
The crypto industry lacks robust standards for evaluating both circulating supplies and market values, to the detriment of investors and other market participants. The $10 billion OKB mystery is one example, but there are likely to be many others.
CoinMarketCap’s AK cited these “heterogeneous standards” alongside the industry’s “general willingness to accept blackbox figures at face value” as primary challenges in its day-to-day operation, with many projects targeting “non-acquiescent aggregators” with FUD (fear, uncertainty and doubt) if they don’t play along.
“Oftentimes, the epistemic standards in this space take the form of ‘It’s in our whitepaper and blog, therefore it must be true. Ergo, your figures are wrong’,” AK said.
Crypto is also rapidly changing, bringing about new issuance models. One example is projects that launch additional wrapped or staked tokens: Do you rank those assets alongside their collateral, even if it means their market values have been effectively double-counted? (The spokesperson cited in-development re-staking protocol Eigenlayer as a platform that would exacerbate this problem.)
Case in point: The staked ETH that contributes to Lido’s stETH’s market cap is still counted in ether’s own figures. CoinMarketCap and CoinGecko rank stETH differently: the former relegates it to its second page, at rank 203, while the latter has it in 12th place.
And even if projects are cooperative, data providers will always have some trust assumptions baked into their analysis — a difficult pill to swallow for those hellbent on verification over trust.
An enormous chunk of OKB supply hangs on this debate
CoinMarketCap listed the following critical questions to ask when determining market values based on a project’s provided information, to evaluate how much trust is required:
Did they act in good faith?
Did they reverse engineer their circulating supply figures by artificially shifting assets around to hoodwink data aggregators?
How do you know whether wallets marked as ‘airdrops’ were sybilled or distributed to random wallets to inflate circulating supply?
If a project does a ‘fair launch’ and the team buys up more than 50% of the supply in the first second, is that really circulating?
When probing irregularities, do you accept wordsmithed explanations at face value? What about honest and well-intentioned projects that don’t express their market cap metrics clearly?
Crypto is a fickle market, often powered by hype and opaque tokenomics. It’s been historically easy to map valuation formulas to traditional equities markets, which simply rely on outstanding shares by stock price.
It’s probable that OKB is not a special case, perhaps not even among exchange tokens. Many circulating supplies and market values are probably overstated — or even understated — and resolving those discrepancies demands individualized care powered by strict adherence to transparency.
A framework for realistic market caps is… probably unrealistic
This is an industry wide problem, and ultimately a question of ontology and epistemology, as CoinMarketCap puts it.
Many projects conflate unlocked assets (no restriction on ability to sell) with circulating supply, so CoinMarketCap often tries to layer wallet ownership into the analysis — determining supply kept by private investors, the team, and other tokens designated for airdrops.
“Generally speaking, we would include centralized exchange cold (and hot) wallets in our computation of circulating supply since this is a sound cybersecurity practice that would theoretically allow them to honor their short-term liabilities (user withdrawals),” AK said.
Still, putting an exact number on circulating supply is “epistemically fraught” since there are many edge cases, like privacy coins, that make it impossible to reliably analyze the chain for address balances.
There are also ways to game the system. (CoinMarketCap cited sudden token unlocks, bots and projects lying about wallet ownership as three examples.)
Schrödinger’s coins
So what’s the answer? What is OKB actually worth – $3 billion, $13 billion, or $1.4 billion?
The unsatisfying answer is… all of them, depending on how strict one is with definitions.
It’s true that almost $13 billion OKB exists on the Ethereum blockchain. It’s also true that about 90% of those funds are kept in cold storage managed by OKX.
And if what the firm says is true, any of those OKB tokens could be sold at any time with some effort, if user demand for withdrawals suddenly increases.
Yet it’s not a lie to say that those cold storage tokens are effectively dormant, and that their ownership could hypothetically be attributed to a single entity at the worst case (that could even be OKX itself.)
In this scenario, the randomized balances of 31,000 cold wallets would effectively encrypt the OKB holdings of whales — be they investors, insiders or other early adopters — hiding the true distribution of OKB and identities of key holders.
After the most valuable cold wallets were drained back in Apr. 2020, when 40 million OKB was sent to the hot wallet, the largest token balances not attributable to crypto exchanges have less than 37,000 tokens each, worth less than $2 million at current prices. So, the largest holders must be on OKX itself.
This could theoretically allow those whales to “smuggle” OKB into the exchange amongst user funds, potentially to be sold via the platform to those users. It would amount to cashing out OKB in a manner practically invisible to the blockchain, effectively disguised as fulfilling user withdrawal demands.
It doesn’t look as though this is happening — otherwise those addresses would be active. But the potential is there.
If the OKB in cold storage doesn’t always align with OKX user funds, then dormant tokens are barely different from those kept inside OKX’s burn wallet. Burn wallet tokens aren’t counted as circulating, since they don’t actually… well, circulate.
Dormant tokens fit the same description. In OKB’s case, we’re asked to trust that there are some OKX users out there who own 90% of the supply, currently valued at $10 billion, but who aren’t yet inclined to sell and withdraw those funds — even after three years and one monumental bull run.
As it turns out, market caps are mostly in the eye of the data provider.
Or in OKX’s case, the eye of the exchange behind the token.
Binance-branded stablecoin BUSD has taken a beating since issuer Paxos confirmed receipt of an ominous Wells notice from the SEC, falling to ninth place on crypto market cap leaderboards.
BUSD is now worth less than the native token for prominent blockchain cardano (ADA). The dollar-pegged token is currently jostling polygon (MATIC), which powers the Layer-2 Ethereum network of the same name, for the eighth spot.
MATIC has flipped BUSD several times over the past few days, but at press time, MATIC is $65 million ahead of BUSD, per data from The TIE.
If MATIC falls even slightly from here, BUSD could very well reflip the token, but additional reductions in BUSD supply would jeopardise its position.
BUSD has shed about 20% circulating supply since reports of the SEC’s intent to sue first surfaced on Feb. 12.
SEC regulators have informed New York-headquartered Paxos it considers BUSD a security, which should’ve been registered before being sold to US investors.
Paxos quickly announced it would pause all new token issuances, effectively ceasing sale of fresh BUSD to customers. The firm also said it would cut ties with Binance, leaving the stablecoin in limbo.
There was as much as $23.5 billion in BUSD circulating the crypto ecosystem at its peak in mid-November as crypto exchange FTX blew up. That figure is now $12.8 billion.
Blockchain data reviewed by Blockworks shows Paxos burning almost $3.5 billion BUSD across that time, indicating the firm had redeemed an equivalent amount for US dollars (Blockworks has reached out for comment).
Still, BUSD remains the third-largest stablecoin by market value, behind tether (USDT) and USD coin (USDC), which boast $70.4 billion and $41.9 billion, respectively. Fourth-place DAI, the decentralized stablecoin stewarded by MakerDAO, has around $5.2 billion.
But which cryptocurrencies might flip BUSD next? If prices stayed flat, Paxos would need to reduce BUSD’s supply by a further $1.11 billion to be under threat of dogecoin (DOGE).
An additional $1.84 billion would need to be burned to be eclipsed by solana (SOL).
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Coinbase CEO Brian Armstrong is well on his way to fulfilling a pledge to sell company stock to fund his new ventures.
Last October, Armstrong promised to sell 2% of his total Coinbase stake over the next year, with proceeds going to projects like life extension unit NewLimit and science startup Research Hub, both of which he co-founded.
Armstrong is now about one-third of the way through offloading that stock. He held 39.6 million Coinbase shares at the time of the firm’s 2022 proxy statement, representing an 18% stake in the company (with 59.5% voting power).
2% of Armstrong’s stake was around 792,000 shares.
Armstrong has sold 252,722 Coinbase shares for $13.8 million.
He has 539,275 shares to go, now worth $31.74 million
Brian Armstrong’s largest sale was $4.55 million on Jan. 13, as shown by the big yellow bubble.
Coinbase stock has fallen 8% since Armstrong tweeted his plans, and nearly 85% since its direct listing in Apr. 2021. He’s fetched an average price of $54.80 (Coinbase shares are currently worth $59).
Direct listings differ from traditional initial public offerings, in that new shares aren’t created.
Instead, insiders and other early investors provide all the liquidity for public trade. Coinbase insiders have sold more than $5.8 billion in company stock since the firm’s direct listing, $5 billion of which occurred on the first day of trade.
Armstrong took part in those first-day sales, offloading 749,999 shares for $291.8 million, garnering an average price of $389.10. Coinbase stock is down 85% since then, and Armstrong hadn’t sold any Coinbase stock until just after his pledge.
I’m sharing this as I want you to hear it from me first.
Only two Coinbase insiders have bought stock since it went public: Shopify CEO and Coinbase board member Tobias Lütke has acquired $10 million COIN, making regular weekly purchases of more than $350,000 since Aug. 2022. He’s up 7% on those trades ($745,600 in paper gains).
Coinbase co-founder Fred Ehrsam bought the dip much earlier, spending $76.8 million on 1.12 million shares last May for an average price of $68.49. So, he’s 14% down on those buys ($10.6 million in paper losses).
Although, Ehrsam cashed in more than $492 million in Coinbase stock between its direct listing and Dec. 2021 for an average price of $328.
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Tether (USDT) is once again coalescing as crypto’s pegged token of choice, with its stablecoin market share nearing 50% for the first time since December 2021.
The top stablecoin issuer has deployed an additional $2.4 billion USDT this year, now with $68.4 billion circulating supply, representing about 3% growth.
Circle’s offering, USDC, has meanwhile shed more than $3.3 billion in supply year to date. There’s now $41.2 billion USDC floating around the crypto ecosystem, down 7.5%.
Binance’s branded stablecoin, BUSD, stewarded by New York outfit Paxos, comes in third with $16.1 billion.
BUSD has given up around $590 million supply since the start of the year, a 3.5% reduction. All eyes will be on that figure potentially falling following word of the SEC’s intent to sue. The regulator has reportedly claimed that BUSD is an unregistered security in a Wells notice.
The total stablecoin market capitalization currently stands at around $138.5 billion, per The TIE and CoinGecko data compiled by Blockworks, and:
Tether makes up 49.39%,
USDC boasts 29.76%,
BUSD is 11.63%.
Circle’s USDC is trending downward while USDT is on the up
Tether, Circle and Paxos, alongside several other stablecoin firms, allow token holders to exchange stablecoins for US dollars. Their supplies increase as market participants acquire the tokens directly from their respective issuers.
Conversely, stablecoin supplies shrink as their issuers burn tokens as they’re been redeemed, although tokens are often reissued to other customers without burning.
Fourth-place DAI, the decentralized stablecoin maintained by MakerDAO, is much smaller than the top three with around $5.19 billion. DAI has lost $563.4 million from its market cap in 2023, equal to 10% of its supply, making it the biggest loser of the top-tier stablecoins.
FRAX, DAI’s direct competitor with an algorithmic element, has remained steady over the past three months, persisting in fifth place.
TrustToken’s trueUSD (TUSD) is in sixth but stands out for growth, having added $190.4 million this year; 25% more supply.
TUSD is advertised as fully backed by US dollars, but its attestations include references to cash equivalents and other short-term liquid investments. They’re similar to Tether’s and Circle’s with less granularity.
Overall, the stablecoin market has shrunk by 1.5% this year, losing a little more than $2.1 billion.
Total stablecoin dominance hit a record high just below 20% as FTX collapsed last November, but has since retreated to 14.38% as crypto markets have recovered.
Ether dominance is hovering around 20% while stablecoin dominance has pulled back
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