In this issue
- Ethereum 2.0 rallies enough buy-in for release next week
- Bitcoin prices crest higher, but Jamie Dimon is not convinced
- Stablecoins ARST, BRLT and USDC sweep South America
- After BitMEX, are more CFTC crackdowns in the works?
- In China: OKEx founder is released, cryptocurrency exchange to resume services
- Funding spotlight: Crypto transfer portal in China
From the Editor’s Desk
Dear Reader,
The origin story for cryptocurrency and blockchain technology, which is not yet 12 years old, is a fairytale for the 21st century. It is still only a child. But the story is only beginning. Once the world realizes the new reality, the innovation that started as a vision, more stories will be written atop the old ones. Innovation begets innovation. The technology that makes sense, fills a void and makes the world better, will proliferate, survive, adapt and thrive. It is what they call evolution. We are experiencing that in blockchain now.
As the blockchain and cryptocurrency space evolves, so too the opinions around it. Including one Jamie Dimon, the JPMorgan chief whose bank’s market capitalization is now surpassed by the total market value of bitcoin — which is close to passing up its own record high set back on Dec. 17, 2017 at US$19,786. Rather than reiterating he would fire anyone “stupid” enough to trade in bitcoin, the Wall Street pillar now states more modestly now that bitcoin is not his “cup of tea.” A tacit acknowledgement of the child not yet fully grown but already bigger and taller than some of those still in charge.
Stories are shifting, and constantly. It is a testament that there is no straight line in innovation. But you, the reader, are also part of this great story. You’re ultimately in charge of the plot and narrative. What will this child become? Will you champion other innovators and visionaries of our generation? After all, an idea born just 12 years ago is already the new reality for many.
How will this story end? Or, as I’d rather see it… determine new beginnings?
Until the next time,
Angie Lau
Founder and Editor-in-Chief
1. Ethereum 2.0 clears hurdle for December release
By the numbers: Ethereum 2.0 release date — over 5,000% increase in Google search volume.
Ethereum 2.0 has cleared a major hurdle and now has enough ETH staked in its deposit contract to launch Phase 0 of Ethereum 2.0 on Dec. 1. Had the target threshold not been met by Nov. 24, the launch date would have been delayed to seven days after the threshold was reached.
- @VitalikButerin: “The #eth2 deposit contract has reached more than half of its target (currently at ~278000 ETH deposited), with the bulk of the deposits taking place in the last three days!”
- Bloomberg reporter Matt Leising (@mattleising): “Wow 96 percent; when I wrote the ETH 2.0 story on Friday it was 20% — never let anyone tell you #Ethereum’s community ethos doesn’t matter. It’s hugely important to its continued success.”
Forkast.Insights | What does it mean?
For a while, it didn’t look like the Ethereum 2.0 crowdfunding initiative would hit its goals. But, as its self-imposed deadline approached, a rally of capital from whales pushed the project past the finish line.
But why wasn’t there early enthusiasm? Why is it that the project just made its goal with mere days to spare?
Two reasons: poor investment terms, and the fact that we simply don’t need Ethereum like we used to.
In order to get Ethereum 2.0 off the ground, it required staking of at least 612,544 ETH (US$379 million) with a minimum commitment of 32 ETH per staker (US$19,800). As Ethereum 2.0 is a proof-of-stake network, the network’s stability relies upon a baseline of locked-down tokens that are used to validate future mining. So to get it going, a ground floor had to be laid. For those who chose to stake their tokens, they will have to lock them up for two years with a yield rate of just under 6%. While these terms might seem highly competitive compared to the interest offered by a traditional bank, they are minuscule compared to the yields offered by many DeFi platforms, which begin at 50 to 60% for the most conservative of projects and top out at 200%. Keep in mind that during these two years, the locked-up tokens are also subject to price fluctuation risk. If there’s a major bear market in the future of Ethereum — or cryptocurrency in general — the value of the investment is going to drop like a rock.
Then there’s the ultimate question: do we still need Ethereum? When the platform first launched in 2015 the industry was remarkably different. Programmable money didn’t exist. There were some attempts to build smart contracts and tokens on top of Bitcoin, such as Colored Coins, but the projects were largely abandoned after the ERC-20 standard was created. Now, with the plethora of alternative competing blockchains, from Stellar and Solana to TRON and NEO, there may not be the same need for Ethereum anymore.
2. Jamie Dimon is not sold on bitcoin
By the numbers: Jamie Dimon — over 5,000% increase in Google search volume.
Bitcoin’s near-record high of US$19,348 today has made it larger than JPMorgan Chase & Co., the bank with the world’s highest market cap at US$349 billion. Bitcoin’s recent bull run has pushed its market cap to US$359 billion.
- JPMorgan CEO Jamie Dimon, who attended the New York Times DealBook online Summit last Wednesday, continued voicing support for blockchain technology while doubling down on his skepticism on bitcoin. “It’s just not my cup of tea,” the Wall Street pillar said.
- Bitcoin’s current price is the highest it has been in three years. On Dec. 17, 2017, bitcoin surged as high as US$19,783.06 before retreating. It is currently trading at over US$19,000 at the time of publication.
Forkast.Insights | What does it mean?
Jamie Dimon has long been a skeptic of bitcoin, but as the world’s largest cryptocurrency becomes an institutional grade asset he certainly has softened his tone. Calling something “not my cup of tea” is miles away from calling it a “fraud” and “not a real thing,” which was Dimon’s tone three years ago.
Perhaps Dimon had a point at the time. The bull market when he made his fraud declaration was fueled by shady initial coin offerings (ICOs), which did very little to inspire confidence from investors, with 87% of tokens trading below their token price a year later and 70% of projects having “no offering in the market at all.” JPMorgan is involved with the underwriting of plenty of IPOs, and if the IPOs associated with its name had similar results, the bank’s reputation would be in serious trouble. So perhaps it’s understandable why he called it a “fraud.”
But the bitcoin of 2020 is a world apart from that in 2017. There’s a regulated custody industry. Tokenization is on the tip of many regulators’ tongues. Security token offering (STO) laws are now a reality (though the market isn’t exactly enthusiastic about the product). The Commodity Futures Trading Commission is drafting an enhanced framework for exchanges. This industry has changed and Dimon is beginning to understand that.
3. Stablecoins ARST, BRLT and USDC sweep South America
By the numbers: Stellar — over 5,000% increase in Google search volume.
Brazil and Argentina are getting stablecoins tied to the real and peso, respectively, courtesy of Settle Network and Stellar. The announcement was made by Settle Network in Stellar’s recent Meridian conference. The Argentine (ARST) and Brazilian (BRLT) stablecoins live on the Stellar blockchain.
- Settle Network is Latin America’s largest digital assets settlement network, and Stellar is a decentralized protocol for cryptocurrency to fiat money transfers and cross-border transactions.
- In a related development, the United States government has tapped USDC stablecoin, issued by Circle, and payments platform Airtm to help the Bolivarian Republic of Venezuela — the government in exile led by Juan Guaidó — to deliver financial aid to the people of Venezuela, a country convulsing in economic and monetary turmoil. The Venezuelan bolivar has experienced an inflation rate exceeding 2,000% in 2020 alone. Current Venezuela president Nicolás Maduro rejected election results to maintain power over Guaidó after the 2018 elections.
Forkast.Insights | What does it mean?
One of the arguments for central bank digital currencies (CBDCs) has been to give local currencies a liquidity boost. The U.S. dollar is the world’s currency hegemon because it is by far the most liquid. But as we’ve reported before on Forkast.News, all this comes with a strict set of terms and conditions: you must abide by U.S. law. So one reason that central bankers around the world are putting a great deal of effort into the research and development of CBDCs so that a business transaction between someone in Sydney and a counterparty in Santiago is not subject to U.S. regulation.
All this will come — eventually. CBDCs represent a re-ordering of the money supply, a shift to digital money as opposed to digitized money. This will take time, but in the interim, many of the best features of CBDCs — namely the liquidity boost — are already available in stablecoins.
The U.S. is known to have frosty relations with many of the administrations in South America. For instance, the Trump White House’s tariff threats chilled relations with Argentine President Alberto Fernández, which gave Buenos Aires a big incentive to free itself from dependence on the USD without needing to totally align with the E.U. or Beijing. Until CBDCs are mainstream, whenever that might be, stablecoins just might be the next best thing for smaller countries to meet many of the same policy objectives.
4. Are more CFTC crackdowns on crypto in the works?
By the numbers: BSA — over 5,000% increase in Google search volume.
Last month’s crackdown of BitMEX by the Commodity Futures Trading Commission under the Bank Secrecy Act led the industry to speculate that regulators may be looking to clamp down on U.S. exchanges that are headquartered overseas. But through a Freedom of Information Act (FOIA) request, Forkast.News has learned that the CFTC is likely not actively pursuing any more cryptocurrency exchanges at this time.
- When asked, during a recent CoinDesk event whether the CFTC is investigating other platforms, agency chairman Heath Tarbert replied: “I’ll say maybe.”
- Braden Perry, a former CFTC enforcement attorney and now a law partner at Kennyhertz Perry, believes that the agency is not taking more enforcement actions because it doesn’t feel confident that the extraterritorial nature of many crypto companies would subject them to U.S. law. In addition, Perry thinks the CFTC might be waiting for a more solid regulatory foothold before moving forward with more prosecutions.
Forkast.Insights | What does it mean?
The CFTC is going to find itself between a rock and a hard place.
On one hand, U.S. financial regulators are used to a certain degree of extraterritorial enforcement because the almighty greenback is the tie that binds the world together. For instance, in the case of Huawei, a Chinese telecom executive is currently under house arrest in Vancouver not because of violations of Canadian law or sanctions but rather because her Hong Kong-based bank issued her company a U.S.-dollar denominated loan and thus needed to be mindful of U.S. compliance requirements.
But with cryptocurrency, is there a nexus to U.S. laws? Sure, if there are U.S. nationals involved. Hence the ability for the CFTC to take down BitMex’s executive team: all of whom are U.S. citizens. But bitcoin is sovereign to any regulator. If a non-U.S. national is conducting business via a Malta-registered company and there’s no cash or usage of the legacy financial system involved, what grounds does the CFTC have to intervene? Especially if the platform explicitly bans users from signing up with a U.S.-originating IP address.
Regulators know this, and they also know that if they reach abroad and legislate by force it will likely entrench these platforms further overseas to not be subject to U.S. law.
The solution? Wait until an industry-friendly regulatory framework is in place and the projects come back. Industry-friendly regulations would incentivize compliance. But until something like that is in place and the CFTC has a stronger legal footing to work from, the agency will unlikely be making big moves against the industry in the near future.
5. In China: Authorities release OKEx founder and exchange announces resumption of service
After a month of service suspension, cryptocurrency exchange OKEx announced it would resume its withdrawal services for all digital assets. OKEx founder Mingxing Xu, also known as Star Xu, had been detained by police but is now released.
- OKEx told Forkast.News that its withdrawal services would resume on or before November. 27.
- Star Xu, after a month-long silence, posted a notice in his private WeChat feed on November 20, saying that he was cooperating with authorities about an investigation into an equity merger of his blockchain company, OK Group years ago, and claimed that authorities have found him innocent.
Forkast.Insights | What does it mean?
Things seem to have cleared up between OKEx and Beijing.
When withdrawals resume, we’ll see what concessions have been made. Will there be increased know-your-customer and anti-money laundering (KYC/AML) provisions? Stricter exclusions of Chinese nationals who reside on the mainland but use VPNs? Mandatory tax reporting? Or has the firm arranged for a proper custody solution? It’s unlikely that OKEx will be able to resume operations without some kind of concession, but given the secrecy of the situation, we can only wait and see.
China has really put its cryptocurrency industry on a tighter leash over the last few weeks, including making it difficult for the mining industry to pay their power bills. Cracking the whip over crypto exchanges like OKEx shows there may be more to come.
6. Funding spotlight: Cryptocurrency transfer portal in China
CoMask Network — venture, China, US$2 million
Shanghai’s Mask Network, a new “portal” for web access, secure file sharing and an unlimited cryptocurrency transfer wallet platform, raised $2 million from a variety of Hong Kong-based investors, including Hashkey and IOSG Ventures. This venture round brings the company to $4.15 million in cumulative funding. In an effort to subvert the Great Firewall amid increasing government censorship, the open-source protocol permits individuals to send “red packets” of Ethereum over Twitter through encrypted posts to those with the Mask Network browser extension. Suji Yan, the leader of Dimension, the parent company of Mask Network and an advocate for “social liberty in the ever-realistic era of cyberspace,” has also promoted TesserPG, an OpenPGP protocol for cryptographic security. You can view all the project’s source code on GitHub here.
Forkast.Insights | What does it mean?
There is no similar company in China (or in Asia, for that matter) that is actively seeking to become a “super-app” for encryption, file sharing and cryptocurrency transfer. The most obvious next step for Mask Network, if it seeks to involve more of the hacker community, is to expand its existing user base by integrating with a privacy-focused messaging app such as Signal. It could also form another privacy infrastructure for messaging on top of an existing social network.
In an interview with Decrypt, founder Yan noted the motivation for adding Web 3.0 privacy infrastructure to existing networks. Sending ETH to colleagues and friends via social media posts and encrypted messaging services could be a real game-change for cryptocurrency adoption — especially in the Chinese market where such ventures are incredibly risky and likely to get shut down by authorities at any time. It’s not to say that VPNs and the like don’t exist within China, but the authorities are no fan — to put it lightly. One has to wonder if the company is really based in China — which has been tightening the vise over its crypto industry — as the company claims.