Investments

FTX turmoil increases scrutiny of industry, something institutional investors have been waiting for

Hedge funds and asset managers are deploying digital asset teams, but a lack of regulatory clarity is holding them back.

The recent liquidity crisis at FTX will increase regulatory scrutiny in the crypto industry, which is what institutional investors are seeking, a number of sources told Cointelegraph on Nov. 10.

“This event will be used as a cornerstone to spark new crypto regulations, which is good for the healthy development of the industry. A more comprehensive regulatory framework has the potential to protect long-term investors from fraud and other risks,” stated Julian Hosp, co-founder and CEO of Cake DeFi.

As a matter of fact, October was a significant month for crypto adoption, as big players in traditional finance announced moves into the digital asset space.

BNY Mellon, the oldest American bank, disclosed its digital custody platform to safeguard select institutional clients’ Ether (ETH) and Bitcoin (BTC). Also, France’s Société Générale bank received regulatory approval as a digital assets service provider. Finally, Fidelity expanded retail access to commission-free cryptocurrency trading services.

Developments by established global players are not a coincidence but rather illustrate a scenario where digital assets are a reality for financial institutions. “It takes deep conviction and significant buy-in for a well-established incumbent to enter an emerging asset class amidst market conditions like we’ve witnessed in 2022,” said Sebastien Davies, principal at the digital asset infrastructure provider Aquanow.

Millennial and Gen Z consumers are set to inherit $73 trillion over the next 20 years in the United States alone, according to a recent report from Cerulli. As of December 2021, about 48% of millennial households and 20% of all U.S. adults owned cryptocurrency.

“When you combine the spending power of younger generations with the notion that banking relationships tend to be sticky, and the fact that today’s youth have embraced digital assets, then it becomes clear why so many institutional investors are no longer holding back from entering this new asset class,” stated Davies.

As reported by Cointelegraph, BNY Mellon CEO Robin Vince said in a conference call following the bank’s quarterly results that “client demand” was the “tipping point” that ultimately led to its launch of institutional-focused crypto services in October. He pointed to a survey conducted by the bank this year that found that 91% of large institutional asset managers, asset owners and hedge funds were interested in investing in some type of tokenized asset within the next few years.

Investors are being turned off by the lack of regulations. “The largest hedge funds and asset managers are currently deploying digital asset teams and are looking to build out their strategies. The uncertainty in the regulatory environment is the main hurdle holding them back from diving in deeper,” Adam Sporn, head of U.S. institutional sales at digital asset custody provider BitGo, told Cointelegraph.

With nearly $64 billion in assets under custody, BitGo works with traditional hedge funds and fund managers in an industry that is evolving without regulatory clarity. “VCs continue to make investments in the digital asset space, where they receive token allocations that need qualified custody. Additionally, family offices are continuing to come off zero-percent allocations to one- to five-percent allocations,” stated Adam.

One of the current major concerns is how the ongoing digital shift could affect countries’ economic power as lawmakers are faced with the challenge of fostering innovation and protecting consumers simultaneously.

“Lack of clarity in the regulatory framework in the U.S. is holding back institutional adoption and is driving firms to move overseas, which means innovation is also moving overseas,” said BitGo chief compliance officer Jeff Horowitz, adding that “we don’t need to call all tokens securities to achieve that.”

The current crypto turmoil — the second major crisis in 2022  — is not a game-ender for institutional investors, Ryan Rasmussen, a crypto research analyst at Bitwise, told Cointelegraph, adding:

“Investors and institutions already allocating to crypto can distinguish what was going on at FTX and Alameda from the real innovation happening across the broader crypto industry. I wouldn’t be surprised if those investors are adding to their positions at these prices.”

Binance shares wallet addresses and activity after proof-of-reserve pledge

Days after CZ took to Twitter to announce a new proof-of-reserve system for Binance users, the site went live with public details of its wallet addresses and on-chain activity.

In light of the FTX liquidity crisis and the near-acquisition by Binance, Binance CEO Changpeng “CZ” Zhao assured his community that his network would provide full transparency on asset holdings.

On Nov. 10, Binance published a new page titled “Proof of Assets” on which all details are available of its on-chain activity for its hot and cold wallet addresses. This comes only two days after the initial tweet from CZ on Nov. 8 in which he pledged to create a proof-of-reserve mechanism to ensure “full transparency” to the community.

Binance released an official statement on the new page in which it says it’s the next step in its “commitment to transparency and fostering trust in the ecosystem,” but also that it is only a starting point.

The final goal is to create a Merkle Tree proof of funds, which will be shared with the community in the following weeks, according to the exchange.

“Our objective is to allow users of our platform to be aware and make informed decisions that are aligned with their financial goals.”

The announcement also included a snapshot of hot and cold wallet addresses from Nov. 10, 2022 at approximately 12:00 am UTC.

Additionally, the announcement reiterated that the company’s Secure Asset Fund for Users (SAFU) has been topped at $1 billion. The initial statement came in a tweet from CZ on Nov. 9 and was said to be done “in light of recent price fluctuations.”

Users on social media responded to the publicized numbers, with Reddit users worrying about not seeing Monero (XMR) listed on the new Proof of Assets page but still being available for purchase through the exchange.

Many users across platforms including Twitter and Reddit have said it’s a good start but that reliability tests will be needed.

Related: Bitcoin price hits multi-year low at $15.6K, analysts expect further downside

As the market fumbles in response to the FTX–Binance incident, other crypto platforms have voiced their support of proof-of-reserve mechanisms for their own communities.

In a tweet on Nov. 10, Crypto.com CEO Kris Marszalek said he believes that it should be necessary for crypto platforms to publicly share their proof of reserves. Moreover, Marszalek said the platform will soon be publishing its audited proof of reserves.

Additionally, both OKX and KuCoin released statements on Twitter in which the platforms also committed to publicizing proof of reserves in the coming months.

Singapore’s Temasek engages with FTX in liquidity crisis

Temasek invested in a series of FTX’s round findings that led to its $32 billion valuation in January.

Singapore’s state-owned investment firm Temasek, a shareholder at FTX, is reportedly engaging with the cryptocurrency exchange in the liquidity crisis that led to its unexpected (and still pending) bail out on Nov 8.

In comments to Reuters, the sovereign wealth fund said it was “aware of the developments between FTX and Binance, and are engaging FTX in our capacity as shareholder,” avoiding providing further details about the case impacts on its portfolio.

Temasek invested in a series of FTX’s round findings that led to the exchange’s $32 billion valuation in January. Ten months later, the Singaporean firm is taking part in rescuing the exchange. Temasek participated in FTX’s Series B, Series B extension, and Series C funding rounds, when the exchange raised US$1 billion, US$420 million and US$400, respectively.

Some shareholders learned about the agreement, via Twitter on Nov. 8. In his letter to shareholders sent later on, Sam Bankman-Fried, aka SBF, apologized for being “hard to contact” in the past days, acknowledged he has no idea what exactly the agreement with Binance means, and lastly, close the letter saying he will be “quite swamped” in the coming days, and will write again “when I have time too.”

FTX was backed by other big players in the venture capital scene, including Sequoia Capital, BlackRock, SoftBank, Ontario Teachers’ Pension Plan, Paradigm, Circle, Ribbit Capital, Alan Howard, Tiger Global, and Multicoin Capital.

As reported by Cointelegraph, some of the largest crypto companies are being urged to be transparent about risks they are exposed to following the liquidity crisis that fell over FTX and trading firm Alameda Research.

Tether chief technology officer Paolo Ardoino clarified in a tweet that the stablecoin issuer has no exposure to either of the distressed firms. Similarly, Circle CEO Jeremy Allaire also denied rumors of the firm having exposure to FTX and Alameda. Brian Armstrong, the CEO of crypto exchange Coinbase, also took this opportunity to assure its users that the firm has no material exposure to FTX or FTT.

As the FTX and Alameda crisis unfolded, Binance CEO Changpeng Zhao promised to implement a way to provide full transparency of the exchange’s reserves by using a Proof-of-Reserve mechanism using Merkle Trees.

Galaxy Digital discloses $77M exposure to FTX, $48M likely locked in withdrawals

The exposure amounts represents a small fraction of the firm’s $1.5 billion in liquidity.

In its latest quarterly earnings call on Nov. 9, blockchain financial services firm Galaxy Digital disclosed that it had an exposure of $76.8 million consisting of cash and digital assets to troubled cryptocurrency exchange FTX. Of this amount, Galaxy Digital said that $47.5 million is currently in the withdrawal process.

The day prior, FTX announced it had halted all withdrawals after the combination of a consumer bank run and a devastating price decline in its native FTX Token (FTT), which the exchange uses for collateral, led to a liquidity crisis. 

Despite the current situation, Galaxy Digital said it has $1.5 billion in liquidity, including $1.0 billion in cash and another $235.8 million in stablecoins, to cushion losses. During the quarter that ended Sept. 30, the company’s partner capital declined by 12% year over year to $1.8 billion, citing the backdrop of a declining cryptocurrency market capitalization.

Galaxy Digital primarily derives its revenue from advisory fees, management fees, lending income, mining income and changes in the fair value of investments and derivatives. Year over year, the company’s revenue declined by 84.9% to $32.7 million in the third quarter. This was due to far lower levels of profit from capital investments compared with the same period last year.

Going forward, the company plans to complete its reorganization and migrate from the Canadian Toronto Stock Exchange to the United States-based Nasdaq exchange next year. Effective mid-January 2023, co-president Damian Vanderwilt intends to step down and transition to an adviser and board member. From May 16 to Oct. 24, the firm used some of its cash to repurchase approximately $52 million worth of its shares outstanding.

Rivals steadfast even as two Aussie crypto ETF providers bail

The last week has seen two digital asset ETF providers announce their planned exit from the market amid regulator scrutiny and the prolonged crypto winter.

Two digital asset exchange-traded fund (ETF) issuers in Australia are set to leave the market amid heightened regulator scrutiny and a deepened crypto winter, though some remain bullish about the market’s prospects.

In the last week, Australian crypto ETF providers including Holon Investments and Cosmos Asset Management have indicated they may be stepping back from the crypto ETF scene.

On Nov. 6, Holon said it might close its three retail crypto funds following a hardline stance from the Australian financial regulator, which has accused the fund of failing to “describe the risks to investors in its target market determination filings,” according to a report from the Australian Financial Review (AFR).

It comes after the Australian Securities and Investments Commission (ASIC) issued an interim stop order on Oct. 17 directed at Holon’s three funds due to non-compliant target market determinations (TMDs).

The AFR report notes that Holon has argued that the crypto funds were designed to be part of a diversified portfolio, not the majority of an investment strategy, though it may have fallen on deaf ears. 

Another crypto ETF issuer, Cosmos, is also jumping ship with last week’s announcement that it would de-list its crypto ETFs from the Cboe Australia exchange.

According to the report, sources stated that Cosmos failed to attract sufficient assets under management to remain viable. It also had heavy overheads in crypto custody and professional indemnity insurance costs.

According to public disclosures in September, Cosmos had around $1.6 million in assets under management (AUM) for its combined Bitcoin (BTC) and Ether (ETH) funds.

Related: Three crypto ETFs to be delisted in Australia as crypto winter continues

However, some crypto ETF providers appear to remain committed to the market, which is expected to see one million new crypto adopters over the next 12 months, according to a recent survey from crypto exchange Swyftx. 

Providers currently involved in the Australian crypto ETF market include 3iQ Digital Asset Management, Monochrome Asset Management, and Global X Australia, formerly known as ETF Securities. 

Global X Australia chief executive Evan Metcalf told the AFR that the firm continues to have a “strong conviction in digital assets and has no plans to close any crypto ETPs,” noting: 

“We are very bullish on the crypto markets in general, digital assets, and decentralized finance — we see enormous potential there.”

Metcalf did, however, note that the funds had experienced a “relatively quiet” reception from investors amid the current market downturn, while there was an “unwillingness” from local stockbrokers to provide clients access to its funds.

SEC issues subpoena to influencers promoting HEX, Pulsechain and PulseX

The SEC issued the subpoena as part of the investigation, which demanded the influencers in question produce the required documents by Nov. 15, 2022.

Over several years, social media influencers have earned a bad rep among regulators for shilling risky and unvetted tokens to millions of investors. Pursuing a crackdown on such scenarios, the U.S. Securities and Exchange Commission (SEC) reportedly issued a subpoena to influencers who were found promoting cryptocurrencies such as HEX, Pulsechain and PulseX.

Swedish researcher Eric Wall shared an official letter from the SEC dated Nov. 1, which was addressed to influencers. It read:

“We believe that you may possess documents and data that are relevant to an ongoing investigation being conducted by the staff of the United States Securities and Exchange Commission.”

The letter was accompanied by a subpoena that was issued as part of the investigation, which demanded the influencers in question to produce the required documents by Nov. 15, 2022.

While the HEX community members retaliated against the finding, calling it “fake news,” Wall quickly pointed out that HEX information channels on Discord and Telegram were filled with information on preserving anonymity on data and discussions.

He further challenged those who claimed that the subpoena was fake, stating:

“Hexicans: time to post the unblurred versions here. If they’re fake—no harm right?”

On Nov. 3, Richard Heart, the founder of HEX, tweeted:

“Do you accept the good advice you’re given? You think you do, but do you really? Are you using secret chats with self-destruct timers? Or are you a slow learner? Is it hard for you to click buttons?”

The above tweet supports Wall’s claims. However, Wall maintains that he has no respect for the SEC and that he’s just sharing the information.

Related: Web3 Foundation makes bold claim to SEC: ‘DOT is not a security. It is merely software’

SEC Chair Gary Gensler recently used examples of SEC enforcement against crypto lending firm BlockFi and a former Coinbase employee in justifying the agency’s actions regarding violations of U.S. securities laws while writing for the Practising Law Institute’s Annual Institute on Securities Regulation.

According to the SEC chair, the commission’s enforcement staff consisted of “public servants” and “cops on the beat” who were “uniting public zeal with unusual capacity.”

Here’s why Binance’s CZ invested in Twitter following Elon Musk acquisition

“Free speech is a prerequisite for having freedom of money, which we are building for,” said CZ, highlighting the importance of Twitter as a platform to voice opinions.

The acquisition of Twitter by billionaire Elon Musk got mixed reactions from crypto and global communities, sparking discussions around changes to censorship, account verification and the launch of new crypto and blockchain-centric features. However, Binance CEO Changpeng “CZ” Zhao’s decision to invest $500 million in the social media site took the limelight.

Acknowledging the buzz, CZ shared six reasons why he opted to support Twitter and what it may mean for the future of Twitter.

CZ’s primary reason for investing in Twitter was his belief in free speech. “Free speech is a prerequisite for having freedom of money, which we are building for,” said CZ while highlighting the importance of Twitter in providing a common platform where the general public and prominent figures can voice their opinions.

The second reason for the fund injection is related to Binance’s support for entrepreneurs. In CZ’s words, “With Elon at the helm, we believe Twitter will continue to grow and become an impactful platform for everyone.”

CZ listed “tremendous untapped value” as the third reason for the investment, as he believed that the social media platform could deliver innovative business models without the need for selling user data. With this potential at the backdrop, CZ offered to help with Web3 integration for Twitter, which was also his fourth reason.

The fifth, however, was a personal one for CZ. Twitter has been crucial to CZ in maintaining open communication with the crypto space, including entrepreneurs, investors, journalists and the general public.

CZ also revealed having a similar mindset to Musk — the sixth reason — when it comes to making changes to Twitter, which includes eliminating bots, adding an edit button, paying for blue ticks and paying for commenting on posts.

“Entrepreneurs don’t plan. We execute and adjust,” said CZ as he revealed no etched-in-stone plans for Twitter. While addressing Crypto Twitter, Binance CEO stressed that Twitter was a long-term investment and is not bothered by short-term stock price fluctuations and market conditions.

Related: How CZ built Binance and became the richest person in crypto

According to CZ, central bank digital currencies (CBDCs) are not a threat to the crypto ecosystem.

On the contrary, he said mainstreaming CBDCs would validate and improve trust in blockchain technology. Last year, CZ refuted the idea of CBDCs, stating that they would not be able to match the freedom offered by Bitcoin (BTC) and Ether (ETH).

Here’s why Binance’s CZ invested in Twitter following Elon Musk acquisition

“Free speech is a prerequisite for having freedom of money, which we are building for,” said CZ, highlighting the importance of Twitter as a platform to voice opinions.

The acquisition of Twitter by billionaire Elon Musk got mixed reactions from crypto and global communities, sparking discussions around changes to censorship, account verification and the launch of new crypto and blockchain-centric features. However, Binance CEO Changpeng “CZ” Zhao’s decision to invest $500 million in the social media site took the limelight.

Acknowledging the buzz, CZ shared six reasons why he opted to support Twitter and what it may mean for the future of Twitter.

CZ’s primary reason for investing in Twitter was his belief in free speech. “Free speech is a prerequisite for having freedom of money, which we are building for,” said CZ while highlighting the importance of Twitter in providing a common platform where the general public and prominent figures can voice their opinions.

The second reason for the fund injection is related to Binance’s support for entrepreneurs. In CZ’s words, “With Elon at the helm, we believe Twitter will continue to grow and become an impactful platform for everyone.”

CZ listed “tremendous untapped value” as the third reason for the investment, as he believed that the social media platform could deliver innovative business models without the need for selling user data. With this potential at the backdrop, CZ offered to help with Web3 integration for Twitter, which was also his fourth reason.

The fifth, however, was a personal one for CZ. Twitter has been crucial to CZ in maintaining open communication with the crypto space, including entrepreneurs, investors, journalists and the general public.

CZ also revealed having a similar mindset to Musk — the sixth reason — when it comes to making changes to Twitter, which includes eliminating bots, adding an edit button, paying for blue ticks and paying for commenting on posts.

“Entrepreneurs don’t plan. We execute and adjust,” said CZ as he revealed no etched-in-stone plans for Twitter. While addressing Crypto Twitter, Binance CEO stressed that Twitter was a long-term investment and is not bothered by short-term stock price fluctuations and market conditions.

Related: How CZ built Binance and became the richest person in crypto

According to CZ, central bank digital currencies (CBDCs) are not a threat to the crypto ecosystem.

On the contrary, he said mainstreaming CBDCs would validate and improve trust in blockchain technology. Last year, CZ refuted the idea of CBDCs, stating that they would not be able to match the freedom offered by Bitcoin (BTC) and Ether (ETH).

Why are institutions accumulating crypto in 2022? Fidelity researcher explains

Institutional involvement in crypto, especially in Ethereum, has increased in 2022 despite the bear market, according to the latest findings of a Fidelity Digital Assets survey.

Institutions’ investment in crypto has increased in 2022 despite the bear market, according to a recent survey by Fidelity Digital Assets. In particular, the amount of large investors betting on Ethereum have doubled in the last two years, as revelead by Chris Kuiper, the Head of Research at Fidelity Digital Assets in a recent interview with Cointelegraph.

“The percentage of respondents saying they were invested in Ethereum doubled from two years ago”, pointed out Kuiper. 

Kuiper pointed out that Ethereum’s appeal in the eyes of institutions is likely to increase even more now that after the Merge, Ether has become a more environmentally friendly, yield-bearing asset.

In general, according to the same survey, institutional players are accumulating crypto despite the crypto bear market. At the end of the second half of 2022, 58% of the institutions surveyed were holding cryptocurrencies, a 6 percent increase from last year. Moreover, 78% were planning to tip their toes in crypto in the future.

The main reason for that, the survey shows, is the conviction of the long-term upside potential of digital assets.

“They’re agnostic to some of this crazy volatility and price because they’re looking at it from a very long-term perspective”, Kuiper explained.

To learn more details about how institutional capital is flowing into crypto, check out the full interview, and don’t forget to subscribe to our channel!

The Sandbox co-founder explains how the metaverse has evolved for brands: Web Summit 2022

According to a co-founder of The Sandbox, the future of the metaverse is in a state of evolution, with both brands and users as important catalysts of growth.

The building of the metaverse is an ongoing process. Sebastien Borget, co-founder of The Sandbox metaverse, even called the future of the metaverse evolving.

Speaking to Cointelegraph’s Gareth Jenkinson at the Web Summit tech conference in Portugal on Nov. 3, Borget said that what we see today in The Sandbox is “the natural evolution of things” after almost a decade of work. The evolution of the metaverse, particularly the way brands engage with users, has accelerated at rapid speed.

It’s this fast-paced development that has investors pouring billions of dollars into metaverse projects across the space.

“We’re now seeing in The Sandbox with more than 200 studios around the world that are building on a daily basis,” Borget said in reference to the new tools being released for creators

Many of these studios include iconic, mainstream brands that have found value in engaging with users on a digital plane. Household names such as Gucci, The Walking Dead series, Katy Perry, Snoop Dogg and more have joined in metaverse investments or participation.

Borget said that often, a big frustration of consumers is that they can’t create alongside the big names they love. This is something that metaverse projects allow as they progress.

“It is not just about the influence and the reach of the celebrity or the brand. It’s all about the content — the characters, stories and locations that people are familiar with and want to interact with.”

Aside from the value of top-tier brands and big-name celebrities popping up in digital words, Borget said something to highlight is the actual users:

“Players themselves bring life by being present, by engaging in the land. That is also something that should be seen as valuable because they contribute to the growth of the network.”

Any evolution of a digital platform cannot be made without active users engaging with the new tools and experiences. User needs and complaints shape how a given online space will look like. 

Borget said engagement with a platform is more than just liking, sharing or retweeting. Rather, as the metaverse advances and users interact in digital spaces, the engagement is created together, user and brand side by side.

“To me, that’s real engagement. That’s something that many brands are looking at because they not only reach Gen Z, but they help define the future of themselves in 3D worlds.”

Despite recent rumors surrounding low metaverse engagement, investors and even governments are bullish on building out the digital universe. Recently, a city in Japan decided to turn to metaverse schooling to help with issues of student absence in the area. 

In Norway, a local government agency dealing with taxes decided to open its first metaverse branch to cater to the tech-savviness of younger digital native generations.