Seeds of Change
By Adil Abdulali, Chief Investment Officer
In an ongoing series, CIO Adil Abdulali shares his reflections on the latest crypto market news.
Every once in a while something takes me by surprise in the crypto world…
January 9, 2024
Graduation Day for Crypto!
Scheduled two days from now, January 11, 2024, the first US Bitcoin ETF starts trading, following its approval tomorrow. Welcome to mainstream. The SEC’s chairman is against it; the President of the USA is against it; ultra-connected traditional finance CEOs are against it; even some crypto purists are against it. We The People are for it. Good to see the checks and balances in the US still work. This will be the largest launch day for the ETF industry in its entire history.
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November 27, 2023
Binance – Hero or Villain?
The Binance settlement reminds me of “Rashomon”, the Kurosawa epic known for its depiction of a crime told from varying points of view. It is fitting in our present-day dialectics that the largest risk in the crypto space has been vanquished with neither the naysayers nor the fans being fully vindicated in the settlement of criminal charges. And let’s note that the SEC was MIA in this settlement, leaving the civil chapter open.
Questions whose answers depend on morals, values, and risk-tolerance as much as logic:
Did Binance break laws to get big enough to afford legal battles and get away with it?
Or did Binance just push into a frontier that the regulators haven’t yet reached?
Can we ever expect regulations to come before an activity takes place?
Ponder these as you lower the counterparty risk of Binance now compared to before the settlement.
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November 22, 2023
DAOs and Closed AI…
If you thought crypto has the worst governance problems, this past weekend’s closed board meeting ouster of Sam Altman, now former CEO of OpenAI, should give you pause. Six days have passed and we still have no real idea what machinations led to this bizarre episode. However, 700+ employees (out of 770) urged the company to reinstate Sam. This is decentralized corporate governance forced into place by necessity. Perhaps the experiments going on with decentralized governance in the crypto world will provide alternatives to boards governing companies that are not motivated by profits. In the case of OpenAI, the traditional board structure seems to have broken down trying to balance the “safe AI” motive with the profit motive.
Governance needs more experiments.
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September 10, 2023
Seven years ago, discovering Johoe’s Bitcoin Mempool Statistics page was one of many “aha” moments in understanding blockchains. I’m pleased this is still maintained and useful as ever!
Poke around the various settings for this graphic to quickly understand the variability in time and cost of recording transactions on the Bitcoin blockchain. It is a remarkable feature of the Bitcoin community that such useful tools are developed, supported and provided to the world by dedicated enthusiasts such as Jochen Hoenicke.
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July 28, 2023
Stablecoins - a sChOOL use case for crypto… I was frankly surprised by how creative and far the state of Wyoming has gotten in their plan to use crypto to fund their schools. They want to issue a fully reserved USD stablecoin, abiding by all existing regulations and passing new ones if needed. Since each issued stablecoin will be fully collateralized by treasuries, the income from the treasuries net of operating expenses will go to pay for their schools. The main piece of legislation is called the Wyoming Stable Token Act or Bill SF0127. Here is a summary of the bill posted on the Wyoming Legislature web site that became law in March 2023.
“This bill creates the Wyoming stable token commission which is authorized to issue Wyoming stable tokens. These tokens are a virtual currency that are redeemable for one United States dollar. All funds received from the issuance of the token will be placed in a trust account and invested exclusively in United States treasury bills. The funds are held in trust with any earnings beyond one hundred two percent (102%) of the notional value of the outstanding issued stable tokens being placed in an administrative account to pay for operating costs with any remainder being distributed quarterly into the School Foundation Program Account.”
I, for one, would rather use a Wyoming-issued, fully-reserved stablecoin over USD Tether.
What kind of net interest margin would be generated for schools if this were to take a fraction of Tether’s 86 billion market?
Fun idea.
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August 14, 2023
In case you missed it, in June, UBS underwrote a bond issue for BOCI, the investment bank of Bank of China... on Ethereum – the public blockchain, not some private permissioned chain. This was barely a month after Hong Kong clarified (a bit) its crypto regulatory structure. This bond issue on Ethereum is compliant with both Swiss and Hong Kong law. Watch out DTC if the US regulators get their act together.
Surprising that UBS, a Swiss bank, already has a major tokenization effort. Go Switzerland!
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July 15, 2023
Altcoins experienced a ripple effect as District Judge Analisa Torres issued a summary judgement in the SEC’s case against Ripple Labs involving the token XRP. Adding evidence to our ruminations on the regulatory uncertainty in crypto, Judge Torres declared, “For the reasons stated below, the SEC’s motion is GRANTED in part and DENIED in part, and Defendants’ motion is GRANTED in part and DENIED in part.”
Why is crypto rejoicing in this partial victory? Judge Torres basically points out that just as oranges weren’t securities in the SEC v. Howey case in 1946, tokens are not necessarily securities unless they are part of a broader investment scheme. In addition, Judge Torres stated that secondary trading in XRP was not a securities transaction, even if the primary issuance process was a “securities offering.” This is counter to Gary Gensler’s point of view and a breath of fresh air for us. It also puts a dagger in the heart of the argument the SEC is using against Coinbase accusing it of operating an unregistered securities exchange.
Coinbase, Kraken, and other US exchanges promptly relisted XRP and altcoins rallied because maybe they just are not all securities after all!
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July 7, 2023
A Third Thing… I recently spoke on a panel where I suggested that the solution to the binary choice between a security vs. a token is something in between. Maybe I was wrong. Thanks to Nic Carter from Castle Island Ventures, I found a paper recently released by the UK Law Commission that contemplates a different category entirely for digital assets. Notwithstanding that it is in the context of the UK legal framework, I hope it does prod the US to be more open-minded in finding a solution.
The short version: Property rights in the UK accrue to two types of things, and since digital assets fit neither, one needs a third type of “thing”.
The first broad category of personal property rights are rights relating to things in possession. A thing in possession is any object which the law considers amenable to possession. This includes assets which are “tangible, moveable, and visible and of which possession can be taken.” Since things in possession are capable of being physically owned, rights to them can be asserted by use and enjoyment as well as by the exclusion of others from them. An example of this is a bag of gold: possession of a bag of gold gives its possessor a property right which is enforceable against the world.
The second broad category of personal property rights are rights relating to things in action. They are often described in a narrow sense: “rights in things in action, denied physical enjoyment, are asserted by taking legal action or proceedings.” Common examples of things in action are debts, rights to sue for breach of contract, and shares in a company.
Because tokens don’t quite fit either of these categories, the Law Commission contemplates introducing a third thing. The paper states: “We conclude that the law should not attempt directly to apply legal principles applicable to things in possession or things in action to third category things.”
Pretty thoughtful stuff about things!
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June 30, 2023
Trading volume caught my attention earlier this week…
DeFi is pretty good. I mean it works and provides liquidity. Kind of like a Tequila shot does the job. Uniswap had a trading volume of 627 million earlier this week; Coinbase around 900 million. During the USDC de-peg this past spring there was a day when Uniswap volume was 10 billion vs. only 2 billion at Coinbase.
DeFi is not a toy but a tool.
Coinbase was formed as a company in 2012. Uniswap coded into existence in 2018 on Ethereum, which did not exist in 2012.
Time flies...
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June 23, 2023
Every few days something takes me by surprise in the crypto world. Like the SEC suing Coinbase for being an unregulated securities exchange. But wait, there was a Wells notice, so maybe that’s not surprising. BUT, it’s preceded by FINRA/SEC approving Prometheum as a Special Purpose Broker Dealer for Digital Assets. Here is an unknown company with infinitely less business (isn’t zero infinitely less than anything?), ties to a dodgy investment bank, management with degrees from a discredited law school, and regulatory approval that doesn’t allow it to trade Bitcoin or Ether. Gary must be grinning.
As regulators in the US get crazy, HK, EU, and Dubai are calmly adopting acceptable regulatory frameworks. BTC is rallying over 30k. EDX Markets launched a crypto exchange backed by Citadel, Schwab, and Fidelity, that is already trading. Is someone behind the eight ball here?