Move over the U.S. Federal Reserve (Fed), as the Bank of Japan (BOJ) is now likely to cause major shifts in global market flows. That's the message from Griffin Ardern, volatility trader from crypto asset management firm Blofin.

"I think the BOJ will be the most significant uncertainty factor in the future. Whether it is the Fed or the ECB, their policy paths have been clear, but the BOJ is not, which means that the BOJ is likely to 'surprise' us beyond expectations," Ardnern told CoinDesk.

Since 2016, the BOJ has guided short-term interest rates at minus 0.1% and the 10-year government bond yield at around 0%, known as yield curve control (YCC). It has also set an allowance band of 0.5% above and below the 10-year yield target. In July, the bank said it will allow the yield to move above the cap as long as it stays below 1.0%.

These liquidity-boosting policies have put downward pressure on global bond yields for years, adding trillions of dollars in global liquidity. The persistent easing bias over the years has popularized carry trades, which involve borrowing in yen and investing in high-yielding risk assets.

So, a potential unwinding of the negative interest rate policy and the yield curve control by the BOJ may strengthen the Japanese yen (JPY) and have knock-on effects on risk assets, including cryptocurrencies. The tightening cycles of the Fed, ECB and others are widely believed to have peaked. Meanwhile, the BOJ is yet to move the needle on rates.

"Once the BOJ begins unwinding the ultra-easy policy, many assets previously obtained through the JPY-USD arbitrage channel [carry trade] may be sold off to repay debt denominated in JPY. That, in turn, may have an unexpected impact on the crypto market," Ardern said.

Charles Schwab voiced a similar opinion early this year, saying the carry trade can unwind quickly, leading to "outsized cross-market volatility."

Most economists polled by Reuters between Sept 8-19 poll expect the BOJ to end the negative interest rate policy and abolish the curve control program next year.

According to ING, the central bank may drop hints of the eventual hawkish move on Friday.

"The BoJ is likely to stay pat [on Friday]. It could, however, send a subtle hawkish message to the market after higher-than-expected inflation and a weak JPY, combined with rising global oil prices, pushed inflation up further," ING said, per ForexLive.

This article originally appeared in First Mover, CoinDesk’s daily newsletter putting the latest moves in crypto markets in context. Subscribe to get it in your inbox every day.

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Mt. Gox has pushed back the date for its planned repayments by another 12 months, the trustees for the firm said on Thursday. The defunct crypto exchange had earlier said the deadline for repayments would be Oct. 31, 2023. That has now been pushed back to Oct. 31, 2024. The creditors of Mt. Gox have been looking for some sort of relief for a decade. The prominent crypto exchange was hacked in 2014, which led to 850,000 bitcoin (BTC), worth nearly $23 billion at current prices, being stolen. The exchange managed to recover around 20% of the tokens after the hack.

Bitcoin struggled to gather upside traction even after defunct crypto exchange Mt. Gox pushed out its pending bankruptcy repayments by a year, delaying the return of extra supply to the market. Some analysts, including those at UBS, had warned the repayments could cause an increase in BTC's active supply, leading to price weakness. The assumption was that creditors would quickly liquidate their holdings, having waited for nearly a decade, adding to supply. The crypto market depth has deteriorated significantly since the collapse of FTX, which means a few large sell orders can have an outsized negative impact on prices.

IMX, the native token of non-fungible tokens platform ImmutableX, surged on Thursday, led by South Korean traders. The cryptocurrency rose 35% to 74 cents during Asian trading hours, CoinDesk data show. Major cryptocurrencies like bitcoin (BTC), ether (ETH), XRP and BNB traded 0.5% to 1% lower. The IMX price rally is accompanied by an over 22% increase in the 24-hour global trading volume, which rose to $556 million. The IMX-Korean won (IMX/KRW) pair listed on South Korea's Upbit exchange accounted for nearly 20% of the global activity, followed by Binance's IMX-tether (IMX/USDT) pair, which contributed 7% to the total volume, according to data source Coingecko.

Chart of the Day

The chart shows bitcoin's dominance rate, or the top cryptocurrency's share in the total crypto market, is again trending north.

The latest breakout in the dominance rate comes as bitcoin trades well below its peak in July. In other words, money is likely being rotated out of alternative cryptocurrencies and into bitcoin.

Source: TradingView

- Omkar Godbole

Trending Posts

Here’s How FTX Founder Sam Bankman-Fried’s Trial May Play Out

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MakerDAO’s MKR Nears 16-Month High as Whales Accumulate, Crypto Hedge Fund Sets Bullish Price Target

New York-based cryptocurrency financial services firm Galaxy Digital (GLXY) now has a CEO of Europe as it looks to expands in the continent.

Mike Novogratz's firm has appointed Leon Marshall, its existing global head of sales, as its first European CEO. Marshall will continue as head of sales in addition to his new role.

The newly-created position forms part of Galaxy's aim "to aggressively scale our operations in the U.K. and Europe - a region that has committed to embracing the digital asset future and creating the necessary regulatory frameworks for our industry to operate within," Novogratz said in an emailed announcement on Thursday.

Several crypto companies such as exchange Coinbase (COIN) have been looking to expand their operations in Europe in recent months, partly in response to the relative regulatory clarity that is being offered by the European Union (EU) and the U.K.

Read More: Bitstamp Raising Funds for Asia, Europe Expansion: Bloomberg

Toncoin dropped 8% after jumping nearly 35% last week, while ImmutableX's IMX jumped 30% on Thursday.

Optimism's OP token slid 5% after the Optimism Foundation sold 116 million tokens.

Bitcoin (BTC) traders showed low signs of euphoria that could buoy broader crypto markets after a key Mt.Gox action was delayed another year, suggesting investors had likely priced in rumors of the delay.

The defunct crypto exchange Mt. Gox pushed the deadline for its repayments to Oct. 31, 2024. The exchange was hacked in 2014, which led to 850,000 bitcoin (BTC), worth nearly $23 billion based on current prices, being stolen.

Some investors expected these sales to influence the crypto market, given early investors were likely sitting on several multiples of their initially invested capital and had incentive to lock in gains.

In a broadcast message early Thursday, trading firm QCP Capital attributed bitcoin's recovery above $27,000 to rumors that the start of the distribution of funds to Mt. Gox customers has been delayed until 2024.

Bitcoin, however, failed to hold above those levels and slid to $26,900 as of European afternoon hours.

Major alternative currencies sold off Thursday as traders likely locked in gains from earlier this week. In the past 24 hours, BNB Chain’s BNB and XRP slid as much as 2%, ether (ETH) shed 1%, while dogecoin (DOGE) was little changed.

Toncoin (TON) dropped 8% after rising 35% in the past week, following messaging giant Telegram’s endorsement of the tokens. Elsewhere, ImmutableX’s IMX tokens rose 30%, dominated by South Korean trading volumes.

Layer-2 network Optimism’s OP tokens fell 5% as the Optimism Foundation said it had sold 116 million OP tokens, worth $157 million at current prices, to seven separate buyers. These buyers are expected to use their tokens to vote on Optimism’s governance forums.

Meanwhile, some traders said that data suggested investors were accumulating bitcoin in expectations of a bull market, even as the short-term bearish outlook remained intact.

“Long-term BTC holders are accumulating the coins they sold to short-term investors in the spring, which promises positive prospects for the future, said FxPro analyst Alex Kuptsikevich in a note to CoinDesk. “This is the kind of behavior hoarders exhibit at the beginning of bull markets.”

On-chain analysis firm CryptoQuant said in a note that current price action mirrored past cycles and displayed an accumulation period.

"Bitcoin's recent price performance closely resembles past cycles, suggesting that the biggest cryptocurrency is likely to remain in a consolidation phase until the 2024 halving event, but hinting at a significant price increase after the 2024 halving," analysts said.

FTX founder and onetime CEO Sam Bankman-Fried will stand trial in just under two weeks to defend himself against allegations he deliberately committed fraud and conspired to defraud crypto investors and customers in FTX and Alameda Research.

The estimated six-week trial itself is scheduled to kick off on Oct. 3, 2023, a mere 10 months after Bankman-Fried was first arrested and not even 11 months after FTX collapsed.

To better understand the trial process, CoinDesk spoke to several legal experts, some of whom asked for anonymity to discuss a high-profile case.

You're reading The SBF Trial, a CoinDesk newsletter bringing you daily insights from inside the courtroom where Sam Bankman-Fried will try to stay out of prison. Want to receive it directly? Sign up here.

Jury selection

Though the trial is scheduled to begin next month, there's still some time before the actual arguments are made. The first step, which may occur as soon as next week, is a final pretrial conference where Southern District of New York Judge Lewis Kaplan will lay out what a final witness schedule may look like, how long the trial date may be and rule on any final outstanding motions. Judge Kaplan may also entertain a few motions after the jury is selected, said Martin Auerbach, an attorney at law firm Withersworldwide.

The second step is voir dire, which is what will actually begin on Oct. 3.

The jury selection process will see the judge ask potential jurors a number of questions. He will likely start broad, asking if any potential jurors have travel planned within the next few weeks or might otherwise be unable to disappear from their jobs for weeks, one of the legal experts – an attorney with experience in white collar litigation – told CoinDesk.

He will also likely ask if any of the potential jurors had an FTX account, and dismiss those individuals immediately, they said. Once these broad jury questions are completed, the judge will start asking individuals questions like those proposed by the prosecution and defense teams.

“What will take a long time is the defense and prosecution will likely fight over each juror,” they said. “It’s not going to be a yes [or] no, it’s going to be a back and forth, so I think it will take days.”

And while lawyers may be able to question potential jurors at the state court level, this is federal court, so only the judge will ask questions, Auerbach said.

Some potential jurors may be dismissed if they can demonstrate financial hardship or similar issues. Others may be dismissed through a peremptory challenge, where an attorney can just strike a limited number of potential jurors for any reason.

Other potential jurors may exhibit clear bias against Bankman-Fried as the defendant or the government, and may be struck without counting against a peremptory strike quota.

This process is generally speedy. Given how high-profile Bankman-Fried’s case is, the process could take days just to seat 10 or 12 jurors, though the DOJ estimated in a filing on Sept. 19 that it would only take “the better part of a day.”

There will also be a few alternate jurors, who may be excused at the end unless one of the original jurors has to drop out of the case, Auerbach said.

Both the prosecution and defense have filed proposed questions for the judge to ask each potential juror in a bid to weed out anyone who might be heavily biased or otherwise unsuitable to sit on the jury, suggesting Judge Kaplan ask these individuals if they’re familiar with the case, if they have any opinions on the case or if they know (or know about) Bankman-Fried or the attorneys involved.

Bankman-Fried’s team also proposed a number of questions around effective altruism, political donations and lobbying and ADHD. The DOJ objected to these questions, arguing they seemed intended to prime jurors about his proposed defense.

Reasonable doubt

Once the trial itself begins, jurors, reporters and members of the general public in the gallery will see the DOJ and defense make their opening statements, followed by the DOJ presenting evidence and questioning witnesses. Pretrial filings from the DOJ suggest that in addition to written documents, prosecutors will present audio recordings during the trial.

Through this, there will be cross-examination of witnesses.

Who the DOJ calls as its first witness may help signal the strength of its case, at least in the eyes of prosecutors, one of the experts told CoinDesk. The DOJ may call an FBI agent as its first witness, or it might “go big” and call members of the FTX inner circle immediately.

Both parties have also sought to present certain expert witnesses to describe details such as FTX’s code and even to explain crypto basics, though there is an ongoing dispute over whether some or all of these potential witnesses should be allowed to testify.

The DOJ must prove guilt ”beyond a reasonable doubt”, given that this is a criminal trial. By contrast, in a civil case, there is a lower, “preponderance of evidence” standard.

“Beyond a reasonable doubt, there's no specific percentage but you can think of that as 90+%,” one of the legal experts told CoinDesk. “You have a deep and abiding conviction in the guilt of the defendant.”

The assistant U.S. attorneys trying the case will likely demonstrate each element of each of the charges and illustrate what evidence they have that would support a conviction for each charge, they said.

“They’re tracking each piece of testimony, each document to make sure that they’ve got enough in the record to withstand,” they said. “[Bankman-Fried] will inevitably argue – because every defendant argues after trial – [that] they fell short on this element or another.”

Once the prosecution rests, the defense will have its own opportunity to present additional witnesses. One outstanding question is whether or not Bankman-Fried himself will testify in his own defense.

An increasing number of defendants in white collar cases have been waiving their Fifth Amendment rights and testifying, one of the individuals told CoinDesk, pointing to Theranos founder Elizabeth Holmes (who was convicted last year and sentenced to over 11 years in prison) as an example.

“The thinking now goes that juries are so celebrity-conscious that even if they didn't know who [the defendant was at] trial, they're almost all probably going on Twitter and going online, to research them during the trial,” the individual said. “The judge will tell them not to do that … [but] because you have this celebrity culture that emerged around these cases, the thought is if they don't testify, essentially, the presumption will be they didn’t simply because they just didn't want to admit [their crimes].”

This concern about a tainted jury pool has already popped up during some of the pretrial hearings. Bankman-Fried’s defense team argued that over a million negative articles have been written about the FTX founder, which created a media narrative around him.

Unanimous verdict

A federal criminal trial requires a unanimous verdict for a conviction. If there is a 12-person jury, all 12 must believe Bankman-Fried is guilty at the end of the trial –that he is guilty beyond a reasonable doubt.

The defense’s job may be as (relatively) simple as convincing just one juror that there is insufficient evidence or that prosecutors did not make their case on the different charges.

Auerbach said the judge will read out a set of instructions, explaining how they should evaluate what they heard and saw. Both the DOJ and Bankman-Fried’s team have proposed their own sets of jury instructions.

“[It’s] a piece of paper that lays out the legal elements that they have to find beyond a reasonable doubt to convict, and which if they don’t find beyond a reasonable doubt, they have to acquit,” he said. “If they can’t agree upon themselves, they hang on that particular [count].”

The jury can ask questions, though usually those are reserved for the deliberation period. Jurors can send written questions to the judge, who would read them out in court and work with the various attorneys to provide answers.

“I have to believe in a case this complicated, you're going to have one or more jury questions,” one of the legal experts said.

The other one told CoinDesk another complicating factor is that much of the conduct at the heart of the allegations isn’t really in question. What prosecutors will have to do is convince jurors that Bankman-Fried’s actions met the provisions of the statutes he’s being charged under.

One example is extraterritoriality. Neither wire fraud nor anti-fraud rules under securities law provisions would apply “against a defendant who largely acted outside the U.S.” In other words, prosecutors would have to prove that Bankman-Fried’s actions not only met the definition of wire fraud, but also that he targeted U.S. citizens or otherwise was acting in the U.S.

Bankman-Fried lived in the Bahamas, where FTX’s global entity was headquartered.

If the jury is split, the judge has certain tools he can use to tell deadlocked jurors to “go back and try again,” the other individual told CoinDesk.

“It’s not like if in the first round of voting, one juror says ‘I’m not convinced,’ that’s it,” they said. “They’re going to be told to go back and keep trying to get to a unanimous verdict.”

If the jury comes back after several attempts at agreeing to a verdict and say they have an irreconcilable conflict on all counts, the judge may declare a mistrial, Auerbach said. Otherwise, the jury may agree to a conviction on all or some counts, or an acquittal on all or some counts.

Sentencing

Should Bankman-Fried be convicted on one or more of the charges he faces, how much time he’ll spend in prison will depend in large part on Judge Kaplan.

While sentencing guidelines used to be mandatory a few decades back, they’re now, following a Supreme Court ruling, seen more as a starting point than strict rules, one of the individuals told CoinDesk.

There are still statutory requirements, which the judge would be required to stay within, but those are distinct from the guidelines.

The U.S. Probation and Pretrial Services System would first create a report which would include “an initial calculation of the recommended sentencing range,” the individual said. The DOJ and defense teams could then make any objections they have, advocating for longer or shorter sentences.

Judge Kaplan would then look at the various recommendations and – taking into account a number of other factors like the seriousness of the offenses – hand down the actual sentence.

Oftentimes, in cases where there are multiple convictions on similar charges, the judge may choose to distill the charges down to the “core wrongful conduct.”

Given the way the case has played out so far, it’s also likely that if Bankman-Fried is convicted, his team will appeal. The DOJ cannot appeal a verdict of “not guilty” due to “double jeopardy” rules, the other individual said. “The government doesn’t get to appeal in all but the most rare circumstances. … Once you’ve been released by a jury, you’re essentially released on those same charges for life.”

Either way, this isn’t Bankman-Fried’s final criminal trial. Early next year, he will face an additional set of DOJ charges brought after the initial indictment.

Logistics notes

Judge Lewis Kaplan has signed off on the DOJ's request to treat Friday, Oct. 6 as a trial date. Monday, Oct. 9 is Columbus Day (or Indigenous Peoples' Day), and therefore a holiday.

Bitcoin stays below the 50-day simple moving average after the defunct exchange Mt. Got delays bankruptcy-related creditor repayments.

The delay was expected and priced in.

Bitcoin (BTC) struggled to gather upside traction even after defunct crypto exchange Mt. Gox pushed out its pending BTC bankruptcy repayments by a year, delaying the return of extra supply to the market.

In 2014, the erstwhile Tokyo-based dominant exchange was hacked for 850,000 BTC ($23 billion). The exchange recovered 142,000 BTC, 143,000 bitcoin cash (BCH) ($30 million), and 69 billion Japanese yen ($465 million), which it had planned to distribute to creditors on Oct. 31 this year.

Some analysts, including those at UBS, had warned that the repayments could cause an increase in BTC's active supply, leading to price weakness. The assumption was that creditors would quickly liquidate their holdings, having waited for nearly a decade, adding to supply in the market. The crypto market depth has deteriorated significantly since the collapse of FTX, which means a few large sell orders can have an outsized negative impact on prices.

The deadline has now been pushed out to Oct. 31, 2024, removing supply overhang concerns for the time being. Even so, bitcoin is trading 0.4% lower on the day, near $27,000 at press time, though it's still more than 8% higher since testing support near $25,000 on Sept. 11.

"A large reason we're seeing for this bounce are rumors of a Mt. Gox delay to 2024," QCP Capital said in a market update published Tuesday. "With the prior expected date just a month away, we believe many went short on this, and an official announcement will surely drive a short squeeze identical to the release of the SEC vs. GBTC judgment last month."

In other words, the delay in creditor reimbursements was expected and priced in.

Lack of bullish catalysts

The delay also means a fresh bullish catalyst is needed to drive prices higher. Unfortunately for the bulls, the approval and launch of a U.S.-based spot exchange-traded fund (ETF) is still several months away. Meanwhile, there is little respite on the macro front.

While the U.S. Federal Reserve held interest rates steady between 5.25% and 5.5% on Wednesday, it raised the interest-rate target for the end of 2024 to 5.1% from 4.6%, signaling lesser liquidity-boosting rate cuts for next year.

Some analysts, however, expect markets to look past the Fed's hawkish rhetoric.

"Fed Chair Jerome Powell isn’t ready to back down yet, but markets might look past the rhetoric. Investors know he’s wary of declaring victory against inflation after his infamous transitory call two years ago," David Russell, the global head of market strategy at TradeStation, said in an email.

Crypto hedge fund AltTab Capital said the Fed's acknowledgment that inflation is finally moving in the right direction may see some investors scale up exposure to risk assets. Still, there is little scope for outright optimism.

“While it's a relief that the Fed see us at the peak of rate hikes with their forecast of fewer rate cuts in 2024, it is hard for us to take today’s announcement with too much optimism," AltTab said in an email.

Disgraced trading firm Alameda Research was behind the hiccup that caused bitcoin (BTC) prices to temporarily drop over 87% in 2021, as per an ex-employee who has started to reveal the inside workings of the Sam Bankman-Fried's company.

On Oct. 21, 2021, Bitcoin traders on the crypto exchange Binance.US were left scrambling after the asset plunged within minutes, with no apparent reason, while other bitcoin markets operated normally.

As previously reported, bitcoin prices fell from around $65,760 to as low as $8,200 at 11:34 UTC (7:34 a.m. ET), then quickly bounced back up to almost exactly where it was before. A Binance.US spokesperson told CoinDesk at the time that the crash was due to a bug in the trading systems of one of their “institutional traders.”

The actual identity of the investor remained a mystery so far, but new tweets from a former Alameda Research employee reveals that the trading firm may have been the cause of the ruckus.

PART 2: THE FAT-FINGERorThe story of how a misplaced decimal point at Alameda Research caused a market crash that echoed around the world.(1/n) 🧵#SBF #FTX pic.twitter.com/jCykh6rg1o

— Adi (e/acc) (@aditya_baradwaj) September 20, 2023

Baradwaj claims that while most of Alameda trades were executed using algorithms, there were times when traders could manually send orders during times of market volatility or take advantage of a profit opportunity. And this why the apparent mishap took place.

“The trader was trying to sell a block of BTC in response to the news, and sent out the order via our manual trading system,” Baradwaj tweeted. “What they missed was the decimal point was off by a few spaces. Rather than selling BTC at the current market price, they sold it for pennies on the dollar.”

Arbitrage traders quickly took advantage of the mispricing and restored bitcoin to normal levels. Alameda, however, lost millions of dollars.

“Alameda's losses on the fat-finger trade were staggering - on the order of tens of millions. But because it had been an honest mistake, there wasn't much to do except to implement additional sanity checks for manual trades,” Baradwaj added.

Baradwaj and Binance.US did not immediately respond to requests for additional comment.

CoinScan, an analytics platform aiming to provide crypto users with data that could help reduce losses from exploits, hacks and scams, said it has raised $6.3 million in funding.

The company is backed by Shalom Meckenzie, the largest individual shareholder in sports-betting company DraftKings (DKNG), Mor Weizer, the CEO of gambling software development firm Playtech (PTEC) and Tectona (TECT), a Tel Aviv Stock Exchange-listed digital asset trading firm.

CoinScan, which has been under development for two years, is emerging from stealth to develop products that help assess a token's susceptibility to rug pulls or its distribution, wallet holdings and buying and selling activities in real time.

Losses from hacks, exploits and scams across the crypto sector this year topped $1 billion by early September, according to blockchain security firm Certik, shining a light on the scale of the problem CoinScan is seeking to help address.

Read More: Coinbase Earned $1M Amid Hack, but Hasn't Reimbursed Victims

The foundation behind layer2 blockchain Optimism has sold 116 million OP tokens ($157 million) to seven separate buyers, according to an announcement on the Optimism governance website.

The token sale was described as a "private" and "planned" event with the tokens originating from an unallocated portion of the OP Token treasury. Optimism's treasury remains at around $1.25 billion, all of which is made up of its own token, DefiLlama data shows.

The seven buyers will be allowed to delegate the tokens to third parties in order to participate in blockchain governance.

The foundation also issued its third community airdrop earlier this week, with over 31,000 users receiving a share of 19.4 million tokens. Circulating supply, however, remains relatively low compared to the total supply with a further 570 million tokens being allocated to future airdrops. OP's circulating supply is 18.59% of its total supply, according to CoinMarketCap.

OP is currently trading at $1.35 having lost 2.19% of its value over the past 24-hours, according to CoinDesk data.

Mt. Gox has pushed back the deadline for its planned repayments by another 12 months, the trustees for firm said on Thursday.

The defunct crypto exchange had earlier announced plans that the deadline for its repayments would be Oct. 31, 2023, which has now been pushed to Oct. 31, 2024.

The creditors of Mt. Gox's creditors have been looking for some sort of relief for a decade. The prominent crypto exchange was hacked in 2014, which led to 850,000 bitcoin (BTC), worth nearly $23 billion based on current prices, being stolen. The exchange managed to recover around 20% of the stolen tokens after the hack.

The Mt. Gox repayment could have some impact on bitcoin prices, due to the sheer size of the tokens being released, but would not destablize bitcoin, UBS had said in a report earlier this year.

IMX, the native token of non-fungible tokens platform ImmutableX, surged on Thursday, led by South Korean traders.

The cryptocurrency rose 35% to 74 cents during the Asian trading hours, CoinDesk data show. Major cryptocurrencies like bitcoin (BTC), ether (ETH), XRP and BNB traded 0.5% to 1% lower.

The price rally is accompanied by over 22% increase in the 24-hour global trading volume, which rose to $556 million. The IMX-Korean won (IMX/KRW) pair listed on South Korea's Upbit exchange accounted for nearly 20% of the global activity, followed by Binance's IMX-tether (IMX/USDT) pair, which contributed 7% to the total volume, per data source Coingecko.

According to blockchain sleuth LookonChain, wallets tied to Upbit accumulated 12.53 million IMX ($9.27 million) as the cryptocurrency surged. The balance was then transferred to address 0x2F77AEd5B7259ABD27077f9F99772aDDF913E62E, which now holds over 21 million IMX.

The price rise saw some market participants move their coins to exchanges, perhaps in a bid to liquidate holdings.

"Investors unlocked 3.05M IMX ($2.3M) from the Foundation Treasury Locked wallet after the IMX price increased, possibly dumping to the market," LookOnChain said on X.

3/ GSR deposited 2M $IMX ($1.52M) into #Binance after $IMX rose.https://t.co/RuPpdgwRiIAnd Fund: 0x74c...441 also deposited 851,322 $IMX ($647K) into #Binance after $IMX rose.https://t.co/CWV7yvg2kR pic.twitter.com/bHORrlkUd0

— Lookonchain (@lookonchain) September 21, 2023

Open interest hits record high

The number of active or open positions in perpetual futures tied to IMX, surged over 400% to a record high of 115.42 IMX ($80 million).

An increase in the so-called open interest alongside a rise in a price is said to represent an influx of new money in the market.

NEW YORK – GOP presidential hopeful Vivek Ramaswamy took the stage at Messari’s Mainnet crypto conference on Wednesday evening and announced plans to release a “comprehensive crypto policy framework” by Thanksgiving.

In a “fireside chat” with data company Messari CEO Ryan Selkis, Ramaswamy’s brief remarks – which touched on recent SEC rulings and crypto’s role as a disruptor for traditional finance – painted a generally rosy picture of blockchain technology and delivered a scathing indictment of “three-letter” regulatory agencies.

Selkis said he’d seen the framework and concurred with the GOP candidate that it’s currently “75% there.”

Ramaswamy said he has “relatively strong views on what the future of governmental interface with crypto should be,” zeroing in on what he called an “unconstitutional fourth branch of government” – regulators.

“That is the cancer at the heart of our federal government today,” said Ramaswamy. “Most of the political power is wielded by people who are never elected to their positions that sit in the back of three-letter government agency buildings in Washington DC in a three-letter regulatory alphabet soup.”

Following an appearance from Anthony Scaramucci – the financier famous for his brief stint as Donald Trump’s communications director – Ramaswamy’s remarks speak to crypto’s growing prominence in the U.S. political landscape. As Selkis noted as he welcomed Ramaswamy to the stage, “If you told me a couple of years ago that we'd have a major presidential candidate talking at a crypto conference, I don't think anyone would have believed it.”

Bitcoin’s founding ethos verges on libertarian, but the industry has generally managed to avoid strict categorization on any specific side of the U.S. political spectrum. Ramaswamy’s open embrace of crypto, however, could portend a rightward shift for the industry.

Ramaswamy was a pharmaceutical entrepreneur before he mounted his 2024 presidential campaign – fashioning himself as a youthful, tech-forward heir to Donald Trump’s populist MAGA movement. Even further to the right than Trump on many issues, Ramaswamy’s debate performance in August was something of a break-out moment for the 38-year-old – with attacks from Trump administration figures like Mike Pence and Nikki Haley underscoring the controversial political candidate’s rapid emergence as a serious political contender.

A CNN poll released Wednesday placed the political newcomer second to Donald Trump in the nomination race – ahead of Florida Governor Ron DeSantis, who was widely considered Trump’s main competition in the early days of campaigning.

Ramaswamy’s remarks on Wednesday weren’t the first time he’d spoken positively of crypto. Most recently, in a tweet last month, Ramaswamy celebrated a court ruling against the SEC in its case with Grayscale – a decision considered favorable to the blockchain industry.

The House Financial Services Committee is sending another crypto-related bill to the floor, this time legislation meant to head off a U.S. CBDC.

The committee’s top Democrat accused Republicans of getting in the way of innovation with partisan legislation.

A crypto-related bill meant to stifle a future U.S. central bank digital currency is now heading toward consideration on the floor of the U.S. House of Representatives after committee approval Wednesday, marking further progress for digital assets legislation in Congress.

Republicans in the House Financial Services Committee cleared a bill that Rep. Patrick McHenry (R-N.C.), the panel’s chairman, said would ensure “any U.S. CBDC must be explicitly authorized by Congress” and also “protects Americans’ privacy and our financial system from the risks a CBDC would pose.”

Even as Congress approaches the precipice of a U.S. government shutdown, House lawmakers took time to insist Wednesday that a so-called digital dollar is strangled before it’s conceived. The bill was designed to ban any CBDC pilot programs before they’re proposed, outlaw the Federal Reserve issuing a retail digital currency that could be used for citizen surveillance and require any progress on a government-backed token be explicitly empowered by Congress. While the House progress on CBDC legislation is unprecedented, its future in the Senate is more doubtful.

The House committee’s counterpart – the Senate Banking Committee – is led by Sen. Sherrod Brown (D-Ohio), who doesn’t share Republican sympathies with the digital assets industry.

As with stablecoin and crypto market-structure legislation advanced previously by the committee, this bill was opposed by the panel’s top Democrat, Rep. Maxine Waters (D-Calif.).

“It will keep the United States behind other countries, including China, as a race forward to develop a global standard for central bank digital currencies,” Waters said, accusing Republicans of taking a “deeply anti-innovation stance” on the technology, which has been embraced by other nations. The legislation, she said, would “stifle that research and prevent us from moving forward, even if it means that the dollar loses its status as the world's reserve currency and even if it means that U.S. citizens lose out on faster, cheaper and simpler payments.”

The Fed’s top regulatory official, Vice Chairman for Supervision Michael Barr, said earlier this month that the central bank won’t move forward without being directed by the White House and authorized with legislation from Congress. Despite Republican claims that the administration of President Joe Biden are pushing for a CBDC, the federal agencies haven’t yet proposed a digital dollar and are in the “basic research” phase on studying the ramifications of a U.S. token.

Even if Republican-led crypto bills are approved by the overall House, their reception in the Democrat-dominated Senate is unlikely to be enthusiastic.

Read More: Dueling Digital Dollar Bills Debated in Congressional Hearing on U.S. CBDC

In a widely anticipated move, the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday held monetary policy steady, leaving the range for its benchmark fed funds rate at 5.25%-5.50%.

Fed members projected to keep interest rates higher for next year between 4.9%-5.6%, compared to the 4.3% in the June prediction. They also see stronger economic growth for this year, expecting a 2.1% real GDP increase this year versus a 1% forecast in June.

"In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the Fed statement reads.

The bitcoin (BTC) price remained flat at around $27,200 in the minutes following the central bank’s announcement.

"The big news is the 2024 rates projection, [which is] higher than I expected. This is a very big signal," crypto and macro analyst Noelle Acheson said in an email. "It's the message sent by effectively taking two rate cuts off the table, which also suggests that any rate cuts will come later than the market had been hoping."

Fed Chair Jerome Powell will provide more detail on today’s decision and the future outlook at a press conference scheduled to begin at 2:30 p.m. ET.

The FOMC’s next policy meeting is set for the start of November. Before today’s events, market participants had priced in about a 70% chance there would be no rate change at that November meeting, according to the CME’s FedWatch tool.

For months, Sam Bankman-Fried’s parents, Joseph Bankman and Barbara Fried, have stood at their son’s side as he faced multiple federal charges of fraud, money laundering and campaign finance violations related to the collapse of FTX.

This is an excerpt from The Node newsletter, a daily roundup of the most pivotal crypto news on CoinDesk and beyond. You can subscribe to get the full newsletter here.

Now, the Stanford professors find themselves squarely at the center of the case, accused of misappropriating millions in company assets and playing a key role in alleged misdoings at the fallen cryptocurrency empire.

The SBF trial is becoming a family affair.

“[Bankman and Fried] were very much involved — from the founding of the FTX Group until its collapse.”

“Bankman and Fried exploited their access and influence within the FTX enterprise to enrich themselves, directly and indirectly,” the company’s complaint, filed Monday, begins, listing multiple ways in which Joseph and Barbara quietly directed operations behind the scenes.

SBF has said his parents “weren’t involved in any of the relevant parts” of the business, but prosecutors say “they were very much involved — from the founding of the FTX Group until its collapse.”

Bankman portrayed himself “as the proverbial adult in the room” as he worked “alongside inexperienced fellow executive officers, directors and managers responsible for safeguarding billions of dollars,” the complaint says. He “received millions of dollars in unearned ‘gifts’ and real property, flew on privately-chartered jets, expensed $1,200 per night hotel stays to the FTX Group, and even appeared in a Super Bowl commercial with Seinfeld writer Larry David months before the FTX Group imploded,” prosecutors say. Fried, meanwhile, was the “single most influential advisor” to SBF/FTX’s political contributions campaign, repeatedly calling upon her son to give millions of dollars directly to a political action committee that she co-founded and for which she served as President and Chairwoman.

You have to hand it to the SBF’s prosecutors. They know how to frame an anecdote and raise a telling detail.

SBF put his father in charge of FTX Group spending, and SBF's father gave SBF's Aunt $14k/month to plan a hackathonThe event cost $2.3M to run and had <1200 people attend pic.twitter.com/Q58M8rcclH

— Conor (@jconorgrogan) September 19, 2023

In January, 2022, Bankman was unhappy with his $200,000 annual FTX salary. He emailed FTX’s U.S. head of administration, saying he was only receiving gross pay of $16,667 per month, when he was “supposed to be getting $1M/yr, starting in December.”

He then emailed his son: “Gee, Sam I don’t know what to say here. This is the first [I] have heard of the 200K a year salary! Putting Barbara on this.” SBF was caught between his parents, double-teamed.

See also: Sam Bankman-Fried Blames Everyone but Himself for FTX's Collapse | The Node 

Bankman was said to be an adult, but he was not above lobbying for access to FTX’s star network. He just had to be involved in FTX’s 2022 Super Bowl commercial if Larry David was onboard.

“OK, I’m not a star- fucker and don’t really care about meeting, say, Tom Brady. But Larry David....,” he emailed his son, prosecutors say.

The parents’ lawyers described the filing Monday as a “dangerous attempt to intimidate Joe and Barbara and undermine the jury process just days before their child's trial begins. These claims are completely false.”

SBF's father was unhappy with his salary at FTX US so he emailed SBF asking for more money, and then pulled the "I'm telling your mother" Dad move and looped SBF's mom into the email thread pic.twitter.com/jJaHFqpI7Z

— Conor (@jconorgrogan) September 19, 2023

But we can expect prosecutors to continue to widen their scope to the whole Bahamas-based cabal running FTX, turning insiders into informers and associates into accomplices in their legal efforts.

It all adds to our expectation for the trial due to begin in October (which CoinDesk will be covering extensively) and adds to the notion that “it takes a village” to create a clown-show as wide-ranging as FTX. SBF did not bring down a $40 billion empire on his own. He needed help, including from his parents, who, being the adults in the room, really should have known better even if their son did not.

Last week marked the one-year anniversary of Ethereum’s historic “Merge” – the shift to a more energy-efficient proof-of-stake network. But in some ways the largest smart-contract blockchain has become a victim of its own success: Staking is so popular that the number of network validators is mushrooming toward 1 million, introducing new concerns related to the sprawl. We discuss how Ethereum developers are addressing the issue with the EIP-7514 proposal.

Also in this week’s issue:

Exclusive interview with DYdX founder Antonio Juliano as the decentralized exchange launches its own layer-1 blockchain with Cosmos technology.

Optimism’s $27 million airdrop.

Are we all gonna make it? The infamous Avalanche developer Daniele Sestagalli is back with new project called WAGMI.

You're reading The Protocol, CoinDesk’s weekly newsletter that explores the tech behind crypto, one block at a time. Subscribe here to get it every week.

Network news

Chart from Galaxy Research shows how the projected growth of Ethereum validators would slow based on the EIP-7514 proposal.

CROWD CONTROL: Ethereum has been so successful in attracting new validators for its proof-of-stake blockchain that the network is now starting to suffer from sprawl. There are nearly 800,000 active validators on the network, up about 41% since April’s “Shapella” upgrade, when withdrawals of staked ETH were first allowed, according to a Sept. 14 report by Galaxy Research’s Christine Kim. Based on certain assumptions, the number is on track to hit 1 million by mid-November and 2 million by June 2024. “Ethereum is getting close to reaching an unsustainable number of active validators,” Kim wrote. It’s pretty technical, but network “latency” is becoming a key problem, according to the report: There’s been “an increasing frequency of block reorgs and missed blocks in the first two slots of an epoch, likely due to increasing latency in attestation aggregation.” Developers have formalized EIP-7514 – an improvement proposal that would help, at least in the short term, by limiting entries of new validators to 8 per epoch (roughly 12 seconds), down from the current rate of 12. Another major concern from the rapid proliferation of validators, according to the Ethereum Foundation’s Dankrad Feist in a recent post, is that staking is becoming too concentrated in the hands of Lido, the biggest protocol for so-called liquid staking tokens. The plan to reduce the “churn limit” for new validators could be a stopgap measure for a more “elegant” fix down the road, Feist wrote.

OPTIMISM OPPORTUNISM: Much of this year’s news on the layer-2 blockchain Optimism network, supported by the developer OP Labs, has revolved around the OP Stack – a set of software tools that can be used to spin up new layer-2’s that are essentially modified clones of Optimism. Among them is Coinbase’s Base blockchain, which has quickly climbed in the project rankings since its launch last month, partly thanks to the popularity of the Friend.tech social media platform. But in terms of providing an additional jolt of, well, optimism into the project, there’s often nothing like free money giveaways. And this week, the Optimism Foundation announced its third community airdrop, with more than 31,000 unique addresses receiving about 19 million OP tokens, worth $27 million. Even in the depths of crypto winter, some teams are still flush with pools of money (often in token form) that can be used to incentivize users to transact on these nascent networks. A further 570 million OP tokens have been allocated to future airdrops.

ALSO:

“Many teams are running out of funds.” (Wu Blockchain)

Infamous Avalanche developer Daniele Sestagalli has started a new project called WAGMI – a common acronym in crypto-trader trash-talk for “We’re all gonna make it.” Sestagalli was behind once-top projects like Wonderland, a treasury-backed currency protocol, and Abracadabra, a platform that provides collateral based on yield-bearing assets deposited by users.

Coinbase “has shown no willingness” to return $1.06M validator fee netted from a trading bot in wake of July’s $73M hack of the DeFi protocol Curve – and it’s not obligated to.

Coinbase’s Base blockchain sets new record for daily transactions, at 1.88 million, higher than layer-2 rivals Arbitrum and Optimism combined.

Bitcoin miner F2Pool has returned 19.8 BTC to Paxos, after the crypto services firm mistakenly paid a $520,000 fee on a $2,000 transaction.

South Korea’s crypto ecosystem shakes off Terra debacle, with gaming dominating Web3 activity.

Dallas Mavericks owner and billionaire technology investor Mark Cuban lost some $870,000 worth of tokens – drained of U.S.-pegged stablecoins, staked ETH (stETH), SuperRare (RARE) tokens, and some Ethereum Name Service (ENS) domains. He told DLNews that it happened after he tried to open his MetaMask wallet “for the first time in months.”

Protocol Village

Highlighting blockchain tech upgrades and developments.

Polkadot, the layer-1 blockchain ecosystem, and Circle, the stablecoin issuer, announced the launch of native USDC on Polkadot, according to a press release. "Additionally, Polkadot parachain Centrifuge is making USDC the native currency for its liquidity pools, so users will now be able to finance assets with both DAI and USDC - continuing to open up new ways to access financing on-chain."

IOTA network looks for comeback with “2.0” release, featuring smart contracts, a focus on layer 2 blockchains and decentralized finance (DeFi) applications, the introduction of a new ecosystem fund and an increase in the utility of IOTA tokens.

Messaging app Telegram has endorsed the TON network as its blockchain of choice for Web3 infrastructure, and will integrate it into the app's user interface. A self-custodial version named TON Space is being rolled out to all Telegram users outside the U.S. The rollout should be completed by November, TON Foundation said in an email.

Citigroup, the big U.S. bank, disclosed that it has started a tokenization service for cash management and trade finance for institutional clients using blockchain technology and smart contracts. "The private/permissioned blockchain technology used is owned and managed by Citi and clients will not be required to host a blockchain node to access the services," according to a press release.

Injective, a layer-1 blockchain built for finance on Cosmos SDK technology, announced the launch of “inEVM, the first-ever Ethereum Virtual Machine capable of achieving true composability across Cosmos and Solana,” according to a message from the team.

Money Center

Fundraisings

Alumni from some well-known names in crypto and fintech are starting a new $60 million fund called Oak Grove Ventures to focus on the intersection of Web3, artificial intelligence and biotech. The Singapore-based team Sally Wang, formerly of Sino Global Capital (now Ryze Labs); Ethan Wang, former tech lead of Libra; Shawn Shi, co-founder of Alchemy Pay; as well as Michael Li, a former VP of Coinbase.

Bastion, a startup that describes itself as an "enterprise-focused web3 orchestrator," has secured $25M in seed financing led by a16z Crypto, with additional participation from Autograph, Laser Digital Ventures, Not Boring Capital, Robot Ventures, Alchemy Ventures and Aptos Ventures, according to a press release. The seed round will be used to scale Bastion’s operations, recruit top engineering talent and secure additional licensing to further diversify Bastion’s product offerings.

Blockchain Capital, a crypto-focused investment firm, has raised $580 million for two new funds – split between $380 million for its sixth early-stage fund, which will focus on newer companies and protocols in pre-seed and Series A rounds, and $200 million for its opportunities fund, which will target late-stage investments from Series B onward.

Deals and grants

Crypto custodian BitGo and bitcoin financial services firm Swan plan to form a BTC-only trust company as a means of offering custody without exposure to the rest of the digital asset market.

Metis, an Ethereum layer-2 solution, “is launching The Metis Journey, a $5 million community growth campaign designed to increase on-chain activity with a torrent of new wallets, users and transactions from other chains, as well as new blockchain users,” according to a press release. “The campaign will start by allocating 100,000 METIS tokens [about $1.15 million worth at the current price] to Aave Protocol V3, which powers one of the largest liquidity markets in DeFi, to incentivize supply and borrow activity. Platforms also receiving incentives include Hummus, Stargate, Synapse and Unimaia.”

ZPrize, a competition with the goal of advancing zero-knowledge technology, is “kicking off ZPrize 2023,” according to a message from the organizers. “Teams will compete to win financial rewards of up to equity-free prize pool of $1.5 million in both U.S. dollars and tokens in a range of categories that aim to advance the development of practical and accessible ZK systems.”

Data and tokens

Balancer, DeFi protocol, said late Tuesday that its web front end was suffering from an exploit and urged users “not to interact” with the user interface until further notice. On-chain data appears to show the attacker has stolen over $200,000. (BAL)

The price of ether (ETH) is trading at a 27% discount to fair value, based on new research by RxR, a research-focused joint venture between Republic Crypto and Re7 Capital. Meanwhile, one crypto has made a $150M bullish bet on ether, based on the options-data tracking website Greeks.Live.

New Avalanche (AVAX) dApp lets traders swap hundreds of tokens in single transaction.

Chainlink’s LINK token soared 10% on Monday, outperforming as Fundstrat analyst Tom Couture attributed the rally to optimism surrounding Chainlink’s deal with the interbank messaging system SWIFT to scale tokenized asset adoption. The rally came as Chainlink’s co-founder Sergey Nazarov spoke at SWIFT’s global financial services networking event, Sibos.

Homing in on the ‘Coinbase 10’ Blockchain Address

The “Coinbase 10” wallet has seen a dramatic increase in its total ETH sent and received hourly. (Coin Metrics)

Blockchain sleuths have proven relentless in their efforts to identify the holders of key addresses – for insights on their underlying activity. in a report this week, Coin Metrics analyzed on-chain data for clues on the big U.S. crypto exchange Coinbase. “From the vantage point of an on-chain data analyst, Coinbase has historically proven to be a difficult entity to examine, as it has taken sophisticated actions to secure user funds across many accounts,” according to Coin Metrics. But the firm managed to identify an active address labeled “Coinbase 10” on Etherscan, and then plotted the hourly changes in ETH sent and received by the account. “With close to 150K ETH sent and received, this account is one of the top accounts by ETH volume in that same time period,” the analysts determined.(Dune Analytics/TokenInsight)

In Case You Missed It

Please check out CoinDesk TV’s interview Wednesday with Fahmi Syed, CFO of the Polkadot-focused developer Parity Technologies. (7 minutes)

“Seeing strong demand” across all of our parachains within the Polkadot ecosystem

Asked about the dropoff in developer activity on Polkadot, he didn't agree with all of our metrics but said, “We see a lot of focus on the space”

Polkadot creator Gavin Wood “remains actively involved'

Calendar

Sept. 19-21: Philippine Blockchain Week, Manila.

Sept. 20-22: Messari Mainnet 2023.

Oct. 2-3: Chainlink SmartCon, Barcelona.

Oct. 2-4: Cosmoverse 23, Istanbul.

Oct. 12-13: Bitcoin Amsterdam conference.

Oct. 20-21: Plan B forum, Lugano, Switzerland.

Oct. 25-26: European Blockchain Convention, Barcelona.

Nov. 2-4 Cardano Summit, Dubai.

Nov. 28: EOS native consensus upgrade with “instant finality.”

Dec. 1-3: Africa Bitcoin Conference, Ghana.

April 2024 (estimate): Next Bitcoin halving.

May 29-31, 2024: Consensus, Austin Texas

July 25-27: Bitcoin 2024, Nashville.

Maker (MKR), the governance token of decentralized finance (DeFi) lender MakerDAO, is nearing its highest price since last May, buoyed by rising protocol profits and accumulation by large investors.

The cryptocurrency rose almost 5% in the past 24 hours to $1,320, approaching its early August high of $1,366, CoinDesk price data shows. Surpassing that level would send the price to a 16-month record.

MKR has vastly outperformed the broader crypto market this year with a 152% return. Bitcoin (BTC) is up 64% over the same period, while the CoinDesk DeFi Index (DCF), which tracks a basket of DeFi tokens, has gained less than 10%.

The surge happened as MakerDAO, which issues the $5.5 billion stablecoin DAI, is increasingly investing its vast reserve assets in U.S. Treasuries, benefitting from the high yields in traditional bond markets.

The protocol’s annual revenue has quadrupled to $185 million since the start of the year, while estimated yearly profit jumped to $58 million from $39 million, according to a Makerburn dashboard. MakerDAO also introduced a 5% reward for DAI last month to spur demand for the stablecoin. Its supply has increased by $1 billion since early August.

Two large crypto investors – also known as whales – have been accumulating MKR this month, blockchain sleuth Lookonchain noted, a sign of improving sentiment towards the crypto asset. One entity bought a total of $1.95 million worth of MKR starting on Sep. 4, while another whale purchased $1.63 million of the token this week.

Crypto hedge fund Ouroboros Capital said the price surge will likely continue due to rising DAI supply and revenues, adding that a bullish technical chart pattern points to a $1,600 price target.

“Nice cup and handle forming in MKR. Still of the view that it will test $1.6K,” the hedge fund said in social media platform X, formerly known as Twitter, post.

Back to the desk from a late summer break, it’s a good time for a quick year-to-date performance scan across the digital asset markets (see Figure 1 below). Overall, bitcoin (BTC) has clearly been setting the mood for 2023, as proxied by the CoinDesk Markets Index (CMI), and it feels like the majority of broad crypto market-moving headlines over the past few months can be placed within the bucket of the ongoing saga towards a bitcoin spot ETF.

Figure 1: Digital asset market performance in 2023. Source: coindeskmarkets.com.

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To better understand the context behind the crypto market’s focus on a spot ETF, it’s useful to draw some useful historical parallels to the creation of gold ETFs and their impact on the gold market.

Like gold ETFs, a bitcoin ETF would make it significantly easier for a broader range of investors to gain exposure to bitcoin. It eliminates the need for investors to directly buy and store bitcoin. While this difficulty did not discourage early adopters, it can be a complex and daunting process for many (i.e., imagine walking a grandparent through the cold storage process). Fun fact: Before the first gold ETF was launched, investors could invest in clunkier closed-end funds, gold companies like miners or lug around the actual shiny metal. With an ETF, investor demand for gold increased. A bitcoin spot ETF could do likewise, leading to a surge in buying by retail investors who aren’t currently in the Grayscale Bitcoin Trust (GBTC) or one of the bitcoin futures ETFs like the one from ProShares (BITO).

Related to the increased accessibility would be an increase in liquidity and trading volume in the bitcoin market. Increased liquidity and further diversifying the asset’s investor base could help stabilize prices and reduce price volatility caused by illiquid market conditions. This could also shift the investor base from tech-savvy retail investors and crypto enthusiasts to more mainstream, longer-term real asset investors looking for diversification from fiat currencies.

The launch of a bitcoin ETF could catalyze further institutional adoption of bitcoin, as it would delegate the acquisition and storage of the digital asset to qualified custodians. An ETF structure also provides a more familiar and regulated investment vehicle that institutional investors are comfortable using, which could lead to more hedge funds, asset managers and pension funds allocating capital to bitcoin.

Just as the gold ETF made it easier for investors to add additional diversification to their portfolios, a bitcoin ETF could serve a similar purpose. Investors looking to diversify their portfolios may allocate some of their assets to bitcoin through the ETF, viewing it as a store of value or an uncorrelated asset class. This addition of bitcoin to a greater number of investor portfolios would likely be small in percentage terms due to the relatively young and volatile nature of the asset class, but it would still result in a meaningful flow of capital into the cryptocurrency asset class.

In summary, the introduction of a bitcoin ETF could be seen as a sign of the market's maturation. It signals that bitcoin is evolving from a niche asset class to one accepted and regulated within the traditional financial system.

Takeaways

From CoinDesk Deputy Editor-in-Chief Nick Baker, here is some news worth reading:

SBF’S PARENTS: It’s no secret that Sam Bankman-Fried’s personal inner circle overlapped with this business inner circle. CoinDesk very much addressed that theme last year when it reported that SBF lived with some of his top executives, including ex-girlfriend Caroline Ellison, who ran his trading shop Alameda Research. And it’s been long-discussed how significant a role his parents played. The folks restructuring FTX just asserted they played a large role and sued them. Within the case is an eye-catching scene involving SBF’s dad acting exasperated with his son and saying he’s going to pull his mom into the situation. It wasn’t a normal family squabble over a curfew or whatever. It was Joe Bankman being angry that SBF was only paying his dad $200,000 a year, not $1 million. He wrote: “Gee, Sam I don’t know what to say here … Putting [your mom] on this.” Everyone who has parents feels this one. Relatedly, here’s CoinDesk’s Daniel Kuhn arguing SBF is blaming everyone but himself for FTX’s spectacular failure.

MORE TO COME: U.S. officials going after Coinbase and Binance earlier this year was scary enough for everybody in crypto. But CoinDesk’s Jesse Hamilton reported this week on foreboding new comments from the head of the Crypto Assets and Cyber Unit at the Securities and Exchange Commission. In Hamilton’s words, David Hirsch said the SEC “isn’t done chasing down crypto exchanges and decentralized finance (DeFi) projects it sees as violating securities laws in the same vein” as Coinbase and Binance. To state the obvious: This is not the sort of regulatory clarity crypto folks were hoping for.

SHARP DROP: As Binance continues to face scrutiny from regulators and maybe law enforcement officials, its business is shrinking. Its seven-day average trading volume has dwindled by 57% since the beginning of September. And this appears to be specific to Binance, as the data from K33 Research shows volumes on other exchanges have been mostly flat. “The ongoing [U.S. Department of Justice] and SEC cases versus Binance may have dissuaded market makers from trading on Binance, explaining parts of the decline,” K33 Research senior analyst Vetle Lunde said.

Crypto is on the verge of spawning a new investable asset class globally. And then it will slowly change how just about everything on the internet works.

With the birth of a new asset class will come new business model analysis. New KPIs, metrics, and benchmarks as valuation criteria. New reporting and audit structures. New data providers. And new buy- and sell-side research structures.

Adding to the complexity, crypto investors need to understand concepts such as Metcalf’s Law, Moore’s Law, Lindy effects, the power of open-source technologies and composability. “Good enough technology” and “The 10-year window.”

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Furthermore, investors need a framework for how value flows throughout the tech stack to effectively analyze crypto networks, protocols and applications.

This is especially important today. Ethereum is nearing its “broadband moment” – where throughput constraints are solved via a layer-2 blockchain, unleashing scalable infrastructure to support new applications and the onboarding of the next billion users.

In less than two years, we’ve seen transactions on Ethereum’s largest L2 scaling solutions (Arbitrum, Optimism and now Base) grow by 3,438%.

But what does this mean for the Ethereum layer 1?

L2s provide execution services to the application layer of the tech stack by batching transactions, compressing the data and ultimately anchoring proofs of the data to Ethereum as L1 transactions (final settlement).

Therefore, investors need to know the economic relationship between an L2 and L1 to properly assess and forecast value accrual within the tech stack.

Let’s take a look at the margins of L2s to date.

In aggregate, L2s are keeping an average of 23.5% of all transaction fees running through applications that leverage their execution engines.

Ethereum validators are receiving the remaining 76.5% of user transaction fees paid on L2.

Therefore, L2s are complementary to Ethereum and to holders of ETH, its related asset.

Every product in a marketplace has substitutes and complements. A substitute is another product you might buy if the first product is too expensive. For example, chicken is a substitute for beef. A complement is a product that you usually buy together with another product. Think gas and cars. Or hot dog buns and hot dogs.

All else being equal, demand for a product increases when the price of its complements decreases. For example, hotels in Miami will go up in price if flights to Miami drop significantly.

If L2s are complements and continuously drive down costs that enable superior user experiences, this should ultimately drive more usage of the Ethereum L1.

Complements tend to get commoditized. Therefore, we expect to see L2 margins compress over time as competitors enter the market and Moore’s Law continues to play out.

Of course, this process is still very nascent. And there are additional layers of the tech stack to monitor as well – such as the application layer, Eigen Layer (restaking and “security as a service”), data availability (Celestia), data oracles, etc.

Crypto is on the verge of spawning a new investable asset class globally.

If you’re advising clients or investing within the crypto tech stack, you need to understand how value is created and captured at each layer.

As we gear up for Sam Bankman-Fried’s day in court, it seems prudent to step back and unpack what happened in late 2022 that got us here today:

It is one of the most consequential documents in financial history, given that it caused the collapse of a $32 billion empire in just nine days and now to a highly anticipated criminal trial.

“It” is the infamous balance sheet of Sam Bankman-Fried’s trading firm, Alameda Research. Its explosive contents served as the basis for a Nov. 2, 2022, story by CoinDesk’s Ian Allison. The article raised questions about how sturdy the company’s financial underpinnings were – and, by extension, how safe Bankman-Fried’s better-known crypto exchange FTX was.

It turns out, not at all.

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For the protection of our sources we are not publishing the document itself but rather describing its contents – in finer detail than ever before. Labeled “Consolidated Balance Sheet 2022 Q2,” it gets into the nitty gritty of Alameda’s knotty empire.

Much of that empire relied on tokens of projects Alameda was unusually close with – particularly the formerly white-hot crypto startups it invested in. For example, it led eight-figure investment rounds in the closely linked projects Oxygen and Maps.me and counted nearly $600 million worth of those projects’ tokens (locked and unlocked) on its balance sheet. When FTX went bust it stranded 95% of those projects’ token supply in a state of limbo that seems to continue to this day. Those projects’ tokens have since lost much of their value but even back then they were unlikely to be worth that much in practice. Attempting to trade them at scale on the open markets would have shattered their value.

Alameda had multiple ties to Bonfida, the project behind Solana’s version of ENS, the popular wallet naming service in the Ethereum ecosystem. It was the primary market-maker for Bonfida’s native token FIDA. It acquired millions of FIDA tokens by investing in that startup. Notably, Bonfida developers inherited development duties over the purportedly decentralized Serum crypto exchange, another FTX production.

In SRM the bounds of reality and believability began to break down for Alameda. It was a token that FTX Group coders had conjured out of nothing for the benefit of Serum, the SBF-founded trading infrastructure for much of Solana blockchain-based DeFi. Alameda reported holding nearly $183 million worth of locked SRM and $300 million unlocked, plus nearly $320 million in SRM collateral and an additional $330 million in locked SRM as a liability.

But it was Alameda’s miles-deep holdings of FTT, the exchange token minted specifically by FTX, that proved to be the empire’s undoing. CoinDesk’s Nov. 2 2022 article authored by Ian Allison revealed that billions of dollars of FTT backed up Alameda’s largess – a fact that spooked market participants and eventually set off a run on FTX. It was during that chaos that people began to realize that the emperor had no clothes.

Four days after Allison’s story came out, Binance CEO Changpeng “CZ” Zhao tweeted that "due to recent revelations," his exchange would sell its hefty FTT holdings. That quickly drove down the price of FTT, putting Bankman-Fried's companies into a tailspin.

Bankman-Fried was forced two days later to seek a bailout from Binance. But that proposed takeover fell apart in a day, something another Allison scoop revealed was likely to happen hours before it was made official. Then, on Nov. 11, Bankman-Fried's companies were forced to file for bankruptcy protection.

Allison’s initial scoop on the balance sheet revealed above was widely cited as the catalyst for the collapse. Thousands of news stories credited CoinDesk for setting off the chain of events, including pieces from high-profile publications like The New York Times, The Wall Street Journal, Bloomberg, The Financial Times, The Verge, New York Magazine, CNN and NPR’s “Planet Money” podcast.

CoinDesk journalists went on to win a George Polk Award, one of the top journalism honors, for their FTX coverage. And they’re finalists for the prestigious Gerald Loeb Award; winners for that will be announced next week.

Logistics notes

Prosecutors expect jury selection (“voir dire”) to take about a day, and are asking the judge overseeing the case to treat Friday, October 6 as a trial day instead of as the first day of a four-day weekend.

They’re also citing the need to schedule out-of-town witnesses as a key issue for the first few days of the trial, suggesting they may bring their heavy hitters – the FTX inner circle – out early.

— Danny Nelson, Nick Baker