Chain Reaction - Issue 4 - 13th December 2021
Welcome to this 4th edition of our Chain Reaction newsletter for the week commencing the 10th December 2021. In the news this week we saw more on crypto/DeFi regulation (see first few articles we highlight) as well as an interesting thesis on DAO regulation from Associate Professor Alex Sims at the University of Auckland. We also saw more movement from MicroStrategy buying up more Bitcoin as well as insights into crypto projects which have failed.
What you can expect in this newsletter
In the News
Videos of the week
Charts and Data
Around the world of social media
In the news
Reuters - Crypto executives urge light touch as Congress mulls new regulation - 6 major cryptocurrency companies headed to congress to urge for clearer rules on the $3 trillion dollar industry but also for those rules to not be overly restrictive. Calls were for new rules that accommodate the unique nature of cryptocurrencies rather than forcing them to fit under existing regulation. It's understood that this is preliminary so no new rules expected soon.
CoinDesk - Australia Set for Massive Shakeup to Crypto Regulations: Treasurer - Australian Treasurer Josh Frydenberg announced that Australia would implement the biggest reforms to payment regulations the country had seen in 25 years. The idea was to create a "world-leading" regulatory framework for cryptocurrencies as well as buy now pay later organisations. An article from the AFR ("New regime may force crypto assets to be held onshore") yesterday also highlighted that Treasury would have a consultation process for DAOs (decentralised autonomous organisations) and if this is anything like other consultations, should be open to seeing responses from industry.
CoinDesk - DeFi Startup Earnity Raises $15M Led by Miner BitNile - DeFi startup Earnity, which is launching a curated marketplace for NFTS, raised $15m from BitNile, Thorney (ASX listed firm) and NGC Ventures taking its total to $20m raised so far.
CryptoPotato - Visa Deepens Crypto Foray, Launches Advisory Practice - Visa continues to embrace the crypto revolution with an advisory/consultancy practice being launched to help its clients learning about the world of crypto. On top of a layer-2 payments channel and a program for NFTs, it shows how the traditional finance world is embracing DeFi even more.
CoinDesk - ‘DeFi 2.0’ Platform JellyFi Raises $4.4M Seed Round - The JellyFi DAO which specialises in undercollateralised crypto loans raised $4.4m in seed funding. This was led by Lemniscap, ParaFi Capital, Tioga Capital, White Star Capital and more. It brings borrowers and lenders together and matches them based on their rates (and where umatches lenders can still earn yield even if their offers are unmatched).
Bloomberg - Self-Described Bitcoin Creator Must Pay $100 Million in Suit - Despite being ordered to pay $100 million over damages (over claims he cheated a deceased former friend over IP of Bitcoin's creation) which is much smaller than the original claim of $600 billion plus punitive damages. Despite the outcome and Wright's claims that this adds justification for his claims that he was the creator of Bitcoin, there is still doubt in the community about this.
CoinDesk Opinion - DAOs and the Next Crowdfunding Gold Rush - comparison of DAOs to unregulated Kickstarters and highlighted by the rise and fall of ConstitutionDAO which raised over $40m to buy an original copy of the U.S. Constitution but was outbid and then bungled the refund process. There's certainly a need to be cautious with any investment and whilst this article argues that things are closer to gambling in this space, we're seeing more and more products and services to help highlight rug pulls. Caveat emptor for sure if you're an investor but the future of finance is also being built right now and where there is risk, there is also opportunity.
Alex Sims Thesis - Decentralised Autonomous Organisations: Governance, Dispute Resolution and Regulation - Associate Professor Alex Sims, noted Blockchain Researcher from The University of Auckland published this thesis which argues the need for amendments to existing regulations (sui generis legislation) in order to accommodate the unique structure of DAOs. The link goes to the SSRN publication site where you can further download the PDF - worth a read (image below is front cover ).
Defiant Data Terminal - The Defiant, a source of great insights and education in the DeFi space has had its website and videos out for many to learn from for a while. This week, they announced the creation of a data terminal to help DeFi users look into the weeds of the crypto space. Join the waitlist on the link above.
Alexander Chern - Crypto Projects: Hyped but Later Failed - In this Medium article, various crypto/blockchain failures are highlighted including the NHCT, which was a healthcare focused token to reduce treatment costs and improve data security. It failed as it lacked investors. Check this out and other cautionary tales in the link above.
Videos of the week
The Defiant - Congress gets Crypto'ed feat. SBFs laces, MongooseCoin and Ritchie's Ping Pong - Review and summary of the US Congressional hearings on "Digital Assets and the Future of Finance". As noted in this video, nothing new was discovered in this 4.5 hour long session but the feeling is that inevitability of digital currency and DeFi being here to stay. 10mins
The Defiant - Keeping it real: MicroStrategy whaling up, DeFi 2.0 and DAOs get serious - In this video Camila and Robin from The Defiant chat with Ash Bennington to discuss increasing purchasing of Bitcoin by MicroStrategy (how their purchases work and how to fund them on a company balance sheet) as well as DeFi 2.0 and DAOs (Decentralised Autonomous Organisations). With DAOs its the issue between having complete decentralisation and prone to vampire attacks (removal of liquidity by a better offering) or the DAO locking up liquidity and thus becoming more centralised. Still requires efforts to make governance better but it does look like 2022 could be the year of the DAO.
Investing in a Crypto Index Strategy | The Compound & Friends #24 - Per the show notes "On this week's episode of The Compound & Friends, Michael Batnick, Jeremy Schwartz, and Downtown Josh Brown introduce the all-new RWM WisdomTree Crypto Index!". Later in the show they talk about what Jeremy and colleagues have beend discussing with big heads of wealth management at big banks and the topics are mostly on regulation. Josh mentions then that he does not see how this can be a top in the crypto markets when the main players are still only concerned with the potential negatives. 42mins
ausbiz - 2022 will be the year of further Crypto clarification for investors - 7th December 2021 - per the show notes "Another 200,000 Australians have joined the ranks of cryptocurrency investors this year, with more than 800,000 individuals transacting in cryptocurrency, according to the Australian Tax Office. Mitchell Travers from Aus Merchant told ausbiz that these numbers showed that it was no longer just millennials getting involved." 6mins
Charts and Data
This analysis comes from the analysis by Justin Arzadon of BetaShares in his weekly newsletter - click on this link or the image below to see full newsletter. Link above goes to GlassNode website.
This week I take a look at the difference in volumes flowing into and out of exchanges i.e. the net flow of coins into/out of exchanges. Net inflows typically mean more selling pressure and can be seen as a bearish signal, whilst net outflows can be interpreted as a bullish signal, suggesting investors are willing to take their bitcoin off exchange and place into storage.
Citing data from on-chain analytics company Glassnode, we look at the Net Transfer Volume from/to All Exchanges with a 7-day simple moving average to smooth it out. In the chart you can notice an acceleration of inflows as the price started to chop around under $60K over the last two weeks. Will the recent drawdown further accelerate flows back onto exchanges ready to be sold, or was this drop enough to entice buyers to step-back in? This is a metric worth keeping an eye on over the next few weeks to gauge sentiment.
Bitcoin: Net Transfer Volume from/to All Exchanges (7d Moving Average)
Top 10 cryptocurrencies by market cap as at the 12th December 2021 6:44pm AEST. A sea of red across the top 10 when we look at the last 7 days of price movements. Terra (and their LUNA coin) which moved into the top 10 last week has fallen back to position 11 in the latest price movements.
Social post of the week
This week its from the AFR highlighting Treausry's plans to regulate crypto, buy now pay later and DAOs. There are those arguing it will help with innovation but there's certainly opponents to this move as well. More in the tweet and article link - https://twitter.com/FinancialReview/status/1468434594022268932
Getting Started in DeFi - Part 2 - In this 2nd of our multi-part series, we look at what exactly is a blockchain and how does mining occur on it. Each part shows a menu of what else we have in this series and more will be added over time.