Wall Street-backed crypto exchange a sign of lingering interest despite SEC’s crackdown

From the Editor’s Desk

Dear Reader,

It’s been some time since established Wall Street heavyweights made headlines by wading into the cryptocurrency space, so news of this week’s launch of the EDX Markets crypto exchange is refreshing, given the gloomy tone of developments in the industry — particularly in the United States — in recent months.

The fact that said heavyweights — whose ranks include Charles Schwab, Citadel Securities, Fidelity Digital Assets and Sequoia Capital, as well as BlackRock, which last week filed to potentially launch America’s first publicly traded spot Bitcoin exchange-traded fund — are showing renewed interest in the sector following a barrage of enforcement action by the Securities and Exchange Commission may come as a surprise to some. Yet there’s almost a sense of déjà vu about the way this apparent revival of TradFi’s crypto mojo returns us to a question that has long preoccupied many industry observers: Is this the moment that crypto goes mainstream?

Given the severity of the actions taken by the SEC and the resulting turmoil in the sector, posing such a question may seem perverse, but every industry in history has undergone unintended and disruptive change — a process Austrian political economist Joseph Schumpeter characterized as “creative destruction.” 

In fact, the SEC’s crackdown on crypto and the consequences to which it has given rise may have in fact aided the sector’s longer-term development, despite the obvious short-term setbacks.

And so we continue to build. We are pleased this week to launch a new section in The Current Forkast, featuring insights gleaned from our suite of Forkast Labs indexes, which measure the market performance of non-currency digital asset trading on various blockchains. These unique tools provide a critical bellwether of market sentiment and broader market dynamics. More to come…

Until the next time,

Angie Lau,
Founder and Editor-in-Chief
Forkast.News

Forkast.Insights | What does it mean?

In a move that has sent shockwaves through the cryptocurrency world, the recent launch of Fidelity and Schwab-backed EDX Markets has raised concerns about increased regulatory pressures from the U.S. SEC and the perceived encroachment of traditional finance into the crypto space. This development, coming hot on the heels of BlackRock’s application for a Bitcoin spot ETF, signals a shift in the dynamic between the fledgling crypto industry and the established financial powerhouses.

BlackRock, as the world’s largest asset manager, is a formidable player. With an impressive track record of a 575 to 1 success rate with the SEC for ETF filings, it’s a force that’s hard to ignore. Its unprecedented move into the Bitcoin ETF space — a domain where the SEC has so far shown relentless rejection — may point to a seismic shift in crypto markets, potentially tipping the scales in favor of traditional finance, a scenario that’s not sitting well with many in the Web3 industry.

Such concerns are compounded by the recent scrutiny faced by notable entities in the crypto banking sector — Silvergate Bank, Silicon Valley Bank and Signature Bank. These events have been labeled as “Operation Chokepoint 2.0” by critics, a nod to the perception that these enforcement actions are part of a larger regulatory strategy to unbank the crypto industry.

Recent punitive measures against major U.S.-based crypto exchanges like Binance and Coinbase arguably lend credence to this narrative. The vacuum left in the wake of these actions opens opportunities for traditional financial institutions to carve out a larger piece of the lucrative crypto pie in the world’s biggest economy.

However, this trend is not confined to the U.S. shores. The interest of TradFi in digital assets is gaining momentum globally. Deutsche Bank’s application to operate as a crypto custodian in Germany and Hong Kong’s recent overtures to its major lenders to embrace the crypto industry are cases in point.

Forkast.Insights | What does it mean?

While the index represents the value of the non-fungible tokens market, it also reflects trader sentiment. If the chart looks like it’s trying to smile, well, that’s how traders feel right now. However, only the bravest of builders would dare release a new NFT collection in this current market.

Developers often say building happens during the bear market, and that was on full display this week with a technical innovation that arrived on Ethereum in the form of Ethscriptions (Ethereum’s version of Bitcoin’s inscriptions). Providing a cheaper on-chain storage solution by using transactions’ call data, NFT traders can now store images on-chain for under US$1 as opposed to the hefty fees that NFT contract storage requires. Time will tell if the new protocol will catch on and lead to further innovation, but so far, over 150,000 ‘ethscriptions’ have been created, showing that there may be legs to this new blockchain collectible.

Yuga Labs, the firm behind top NFT project BAYC, revealed its HV-MTL forge, a mobile gaming experience in-line with their previous Dookey Dash. The HV-MTL collection saw a quick pump in sales this week, with over US$1.1 million in secondary action. This may be the start of an uptick in Yuga Labs’ and other projects’ game offerings, as many expect an explosion of p2e gaming in an attempt to win over the masses. 

Speaking of the masses, Fortnite’s 242 million-strong user base was exposed to virtual collectibles on Tuesday thanks to the game’s new integration and mini-event with Nike’s dotSwoosh. Playing just 10 minutes in Fortnite’s new Airphoria event will unlock an achievement and virtual collectible on the dotSwoosh platform, providing its holder with access to a future Nike dotSwoosh shoe drop. Players can also purchase a new skin pack using v-bucks to unlock bonus collectibles on the dotSwoosh platform. Nike will soon enable their secondary marketplace for their digital shoes, and we’re expecting to see some impact on the Polygon NFT Composite.

Despite anticipation from the Web3 community, the recent unveiling of Fortnite’s virtual collectibles on Tuesday did not incorporate NFTs.

“Items recognized across these two ecosystems are purely for the enjoyment of the purchaser, and aren’t tradeable, transferrable, or sellable, as has always been the case in the Fortnite economy,” a spokesperson for Epic Games, developer of Fortnite, said in a statement.

These types of innovations are sometimes under-appreciated in the bear market, but in the future, we will likely look back at this time as a pivotal moment for NFTs, when mass adoption was quietly happening right under our noses. 

Forkast.Insights | What does it mean?

The appointment of Joseph Tsai as Alibaba’s new chairman may be seen in some quarters as a sign that China’s biggest e-commerce company, which also operates the country’s largest cloud computing and digital payment platforms, is fully embracing Web3. After all, Tsai has long burnished his credentials as a Web3 booster, enhancing a reputation backed up with cash that he has invested in the industry, including in crypto.

Some of the more excitable elements in the cryptocurrency community may even regard Tsai’s appointment as a sign that China Inc. — and, by implication, the ruling regime in Beijing — may be warming up to crypto, following a lengthy period of hostility to the phenomenon that has seen it banned outright for almost two years.

That notion seems fanciful, to say the least, given the vice-like grip the Communist Party exercises over China’s financial system, in which any alternatives to its own arrangements and prerogatives are seen as threats that must be crushed without hesitation.

But leave aside crypto, specifically, and Tsai’s new role may be seen as an indication of where corporate China — and, again, the regime — is placing its bets.

China’s blanket rejection of cryptocurrency does not extend to other aspects of Web3 development. Indeed, Beijing has shown itself to be an enthusiastic proponent of blockchain technology and other elements of the Web3 universe — so long as they serve the fulfillment of its own development goals.

Alibaba didn’t attain its stellar success without making smart bets. Nor did it flourish so spectacularly without a nod and a wink from Communist Party bosses — a crucial element of success for any business that aims to thrive in China.

From this perspective, Tsai’s elevation to a top job at Alibaba (of which, incidentally, he is a founder) indeed suggests that the company is betting on sustained and increasing support for Web3 from Beijing — although that support is unlikely to extend to crypto. The outcome of this — to borrow a phrase — appears inevitably to be “Web3 with Chinese characteristics.”