CoinDesk Crypto

The number of open positions in bitcoin futures traded on major exchanges, including Binance and the Chicago Mercantile Exchange, continues to rise, and what appears to be a proliferation of short sellers indicates a dour market mood. That may bring volatility on the higher side. 

Open interest, or the number of futures contracts traded but not squared off with an offsetting position, rose to 397,873.36 BTC on Tuesday, reaching the highest tally since May 18, according to data from the blockchain analytics firm Glassnode. The dollar value of the number of contracts open remained flat at around $12 billion. 

When measured in kind, the metric has risen by more than 100,000 BTC since late May. According to experts, the uptick in open interest indicates traders have been opening short or sell positions amid flat-to-negative price action in the cryptocurrency. Bitcoin has mainly traded in the $30,000 to $40,000 range in the past two months, barring a couple of short-lived dips to $29,000.

Related: Market Wrap: Bitcoin Climbs as Elon Musk Tames Shorts

“In my opinion, it’s mostly short futures, given the persistent negative funding rates in perpetual markets over past few weeks as well as futures markets trading in backwardation,” Shiliang Tang, chief investment officer of LedgerPrime, a $130 million crypto hedge fund, told CoinDesk. 

The perpetual market has consistently seen negative rates since mid-May. 

Calculated every eight hours, the funding rate refers to the cost of holding long/short positions in the bitcoin perpetuals (futures with no expiry) market. The metric is used by exchanges offering perpetuals to balance the market and guide perpetual prices toward the spot price. 

A positive funding rate means longs are paying shorts to keep the position open, and the market is skewed bullish. Meanwhile, a negative funding rate implies a bearish market positioning. 

Related: Elon Musk Says SpaceX Holds Bitcoin at ‘B Word’ Conference

The three-month basis, or the difference between the price of the three-month futures and the spot price, recently turned negative, flipping into the so-called backwardation, a sign of bearish sentiment among futures traders. 

“Institutional investors seem very cautious at the moment and in general seem to be in the process of de-risking,” Arcane Research said in a weekly research note published Tuesday. “The futures premiums on the unregulated offshore derivatives market is also trending towards zero, with FTX still trading at a slight premium.”

One question is whether the uptick in open interest results from direction-agnostic arbitrage strategies, which involve buying bitcoin in the spot market against a sell position in the futures market. The strategy seeks to profit from the futures premium, which evaporates as expiry nears and converges with the spot price on the day of the settlement, making relatively low-risk returns for the carry trader. 

However, the regular cash-and-carry strategy has lost its shine with premiums in single-digits or negative (backwardation) compared with the record 40% basis in mid-April. 

Some traders anticipating a bullish revival and a rise in the futures premium may have employed a “reverse cash-and-carry” strategy by selling bitcoin in the spot market against a long futures position.

“Increased reverse cash-and-carry positions could have lifted open interest, but I doubt that it’s the primary driver,” Rahul Rai, managing partner at Gamma Point Capital, said. “So overall, it looks like there’s decent short interest at these levels.” Gamma Point Capital runs a market-neutral fund. 

LedgerPrime’s Tang said reverse cash-and-carry strategies appear quite unattractive with annualized premiums in single digits. Further, Tang pointed to low bitcoin borrowing rates offered by lending-borrowing protocols as evidence of weak demand to borrow bitcoin and short against a long position in the futures market. 

All things considered, the futures market is mainly biased bearish, which leaves the door open for sharp corrective rallies in bitcoin’s price. When leverage is skewed to the bearish side, a move higher often results in forced closure of short positions (exchanges square off shorts). That, in turn, puts upward pressure on the cryptocurrency’s price, leading to exaggerated price moves. “A rally up could cause them to get liquidated,” Rai said.

Bitcoin is currently trading at $31,400, representing a 5% gain on the day.

Also read: Bitcoin Retakes $31K as Traditional Markets See Risk Reset, BNY Mellon Makes Crypto Push 

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Think of it as the Carfax of bitcoin mining.

Announced Wednesday, Compass Mining and mining consultancy Navier are rolling out a new tool that lets buyers and sellers verify the advertised hashrate of their specialized bitcoin mining machines.

Like most third-party verifiers, the tool, HashTest, is working to answer a common question for buyers and sellers: How does something actually work versus how it’s advertised?

Related: Bitcoin Miner Iris Energy Aims to Raise $200M in Funding Before Nasdaq Listing: Report

In the bitcoin mining context, it’s important because there are few ways to verify how a machine is actually performing when plugged in and running at a mining site. That data is usually kept private by mining companies. 

“HashTest is a tool we have created for everyone to identify independent and unbiased information regarding an ASIC,” Compass Mining CTO Paul Gosker said in a statement, referring to the application-specific integrated circuit machines that power most bitcoin mining operations. “HashTest will allow sellers to demonstrate the performance of an ASIC to a buyer.” 

Data for retail ASICs is still fairly splintered in terms of transparency. For example, the Compass mining marketplace lets crypto miners big and small purchase and deploy their rigs. A tool like HashTest would allow buyers of mining equipment to get better efficiency data on the machines they’re purchasing. Hashrate is a measure of the computational power working to add new blocks to the Bitcoin blockchain.

“HashTest is the first globally available independent hashrate testing service,” Navier CEO Josh Metnick said in a statement. “We are not a manufacturer, we are not a mine, we are not a pool, and we do not make firmware. Our only goal is to provide the most accurate and unbiased hashrate measurement. We believe these datasets will empower both small and large miners to make more informed decisions.”

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Cryptocurrency exchange Bitstamp has hired Robert “Bobby” Zagotta to become its first U.S. chief executive officer, the company said Wednesday.

Zagotta, who was Kraken’s chief commercial officer for over three years, will oversee Luxembourg-based Bitstamp’s daily U.S. operations and help the company achieve the goal of growing its U.S. business.

Noting the U.S.’s “unique regulatory landscape and huge potential upside in the digital asset industry,” hiring a regional CEO demonstrates “the importance that the United States is playing for our global exchange,” global CEO Julian Sawyer said in a press release.

Related: Bitstamp Adds Support for Euro-Backed Tether Stablecoin Amid Increasing Demand

Zagotta’s arrival dovetails with Bitstamp’s efforts to bolster its workforce in the U.S., where over the first six months of 2021, the number of new customers soared by 570% and assets under management by 281%. In May, Bitstamp said it would triple its then 11-person U.S. team and increase customer support by 50% by the end of 2021.

Prior to his stint at Kraken, where his responsibilities included strategy and growth initiatives, Zagotta was a managing director at the financial exchange and markets operator CME Group. Earlier in his career, he served as a senior manager and principal consultant at PricewaterhouseCoopers.

“Bitstamp and the entire digital asset industry have an amazing opportunity and obligation to bridge the gaps between traditional finance and crypto in smart, innovative ways to get more people involved,” Zagotta said in a statement.

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Vincent, a search engine for alternative asset investing created by the founders of Indiegogo, has raised $6 million in a funding round led by Jason Calacanis’s LAUNCH. Investment firms 8VC and Digital Currency Group (the parent company of CoinDesk) also participated.

Vincent had previously raised a $2 million seed round back in December of last year when the platform emerged from test mode. 

Vincent tracked some $3.3 billion in investable opportunities last month and saw users deploy about $100 million in capital, the company said. 

Related: Robinhood IPO Filing Shows Dogecoin Trading Drove Big Gains

Crypto accounted for 12% of asset searches on Vincent in June of this year (the most popular was venture capital at 28%, followed by real estate at 26%). However, the trend was downward for crypto (-4%), which dropped out of the top five segments. 

“There has been a small downtick for crypto in June and I think that’s in parallel with interest rate concerns and inflation concerns, so you’ve seen a little bit of a shift to yield-oriented assets, like real estate and debt in the last two months,” Vincent founder Slava Rubin said in an interview. 

That said, the overall crypto growth trend is evidenced under the platform’s VC search umbrella, where startups focused on cryptocurrency and blockchain technology are leading, ahead of things like artificial intelligence and cannabis, Rubin added.

“When we launched in November, crypto wasn’t in the top five of sector searches in startups,” Rubin said. “But now it’s number one month after month.”

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Avalanche, a faster, cheaper alternative to Ethereum, has incorporated data feeds from Chainlink, the market-leading blockchain oracle.

Smart contracts with external data piped in, such as price feeds, are powering a growing decentralized finance (DeFi) economy of lending apps, decentralized exchanges and price-sensitive derivatives markets. 

These types of decentralized applications (dapps) are being built on the high-throughput Avalanche platform that went live in September 2020. Avalanche is similar in some ways to other base-layer blockchains like Solana and Binance Smart Chain, but with a novel consensus system and better compatibility with Ethereum-based smart contracts.  

Related: DeFi Isn’t Better Than TradFi if People Can’t Use It

Adding Chainlink data feeds to the mix will kickstart a DeFi ecosystem on Avalanche, said Ava Labs president John Wu. 

“There are over 225 projects building on the Avalanche ecosystem, many of them in integration mode, waiting for some functionality such as oracles from Chainlink,” Wu told CoinDesk in an interview. “Some large stablecoins are also shortly down the pike. So this is why we’re so excited.” 

Historically, DeFi and blockchain oracles emerged at about the same time, said Chainlink co-founder Sergey Nazarov. 

“That’s not a coincidence,” Nazarov told CoinDesk in an interview. “The dynamic around DeFi is that you really can’t build it without external data. DeFi is what we call ‘a hybrid smart contract,’ in the sense that it combines on-chain code and off-chain systems.”

Related: MakerDAO Moves to Full Decentralization; Maker Foundation to Close in ‘Months’

The Chainlink network is really a collection of many services that provide various specific data inputs, said Nazarov, where price data informs DeFi, random number generation enables gaming, weather data opens up other use cases and so on. 

“The industry was about this one smart contract for tokens. Then it moved to tokens plus voting, and then to tokens and voting using external data,” Nazarov said, adding: 

“So tokens are like the unencrypted email of our industry; they are the beginning. Now we are opening the entire universe of what you can build.”

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Virtually Human Studio (VHS) has raised $20 million in a Series A funding round led by TCG and with participation from Andreessen Horowitz and Red Beard Ventures.

• The Australian company, founded in 2018, has developed a blockchain-based, virtual horse-racing game, called Zed Run.
• It will use the funds to expand its project and engineering teams.
• Game participants can buy non-fungible tokens (NFTs) representing racehorses with differing racing and breeding characteristics.
• Since its launch in 2019, more than $30 million of racehorse NFTs have been sold.
• VHS plans to develop the game so that “players can work in professions such as stable owner, race track owner, breeder, accessory designer and more,” CEO Chris Laurent said.

UPDATE (JULY 21, 12:43 UTC) Adds game description, development plans.

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Bitcoin (BTC) returned above $30,000 support during Asia hours as buyers reacted to oversold conditions. The next level of resistance is seen around $32,000 and $34,000 given the intermediate-term downtrend.

The quick rebound above $30,000 is similar to the June 22 shakeout which preceded a brief price rally. Bitcoin was trading around $31,400 at press time and is up about 6% over the past 24-hours.

• The relative strength index (RSI) on the four-hour chart registered an oversold signal on Monday as bitcoin dipped below $30,000. The RSI is not yet overbought, which could keep buyers active towards $34,000 resistance.
• The 100-period moving average on the four-hour chart is sloping downwards as buyers have been quick to take profits on rallies.
• Short-term momentum is improving as bitcoin returns to a month-long range. The rebound above $30,000 suggests selling pressure from June is starting to slow.

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Today, we’re diving into the valuation models and revenue analysis of decentralized finance (DeFi) protocols on Ethereum. 

For this week’s New Frontiers section, CoinDesk Research’s Teddy Oosterbaan presents his findings on the most profitable types of DeFi applications in terms of return for liquidity providers, token holders and protocol treasuries. 

This article originally appeared in Valid Points, CoinDesk’s weekly newsletter breaking down Ethereum 2.0 and its sweeping impact on crypto markets. Subscribe to Valid Points here.

Pulse check

Related: Ethereum Developer Virgil Griffith Back in Jail in the US

We’re excited to introduce new and improved graphics for our weekly pulse check on the Ethereum 2.0 Beacon Chain and CoinDesk’s Eth 2.0 validator. Moving forward, two graphics will replace our usual stream-of-consciousness writing in this section and give you a quick overview of activity on Eth 2.0 over the past week.  

The first graphic above illustrates the overall health of the Eth 2.0 blockchain through four metrics, including network participation rate, number of validators, total ETH deposited and share of total ETH supply deposited. Generally, the higher these numbers are, the greater the overall security and value of the Eth 2.0 Beacon Chain. 

The second graphic above illustrates the overall health of the CoinDesk Eth 2.0 validator dubbed “Zelda.” 

Zelda has been an active participant of the network since Feb. 17. She has submitted 34,525 attestations, which are votes confirming the validity of data on the blockchain, and proposed four blocks. Rewards from attestations make up the bulk of Zelda’s daily income as a validator. However, during the rare days when Zelda is tasked with the responsibility of a block proposal, daily income can increase by up to 67% from the norm. 

Related: Ether Falls Toward $1.7K as Bitcoin’s Price Drop Weighs on Broader Market

In the weeks to come, the daily income chart featured in our second graphic will illustrate fluctuations in Zelda’s earnings as a result of her on-chain activity. 

Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network.

New frontiers: Profitability of DEXs and DeFi applications

Among DeFi applications, decentralized exchanges (DEXs) are the most profitable in terms of return for liquidity providers, token holders and protocol treasuries. 

The DeFi landscape can be broken down into three broad categories – lending, trading and asset management. These finance-focused applications generate revenue in a similar way to their traditional counterparts, like commercial banks, exchanges and hedge funds. However, by automating financial services with smart contracts and removing the large amount of human capital traditional firms require, DeFi applications can return a greater portion of their revenue to their users. 

As of July 18, the market capitalization of DeFi tokens was about $60 billion. Some of the top DeFi protocols by market capitalization, such as Compound, Uniswap and Aave, have generated a combined annual core business revenue of over $1.3 billion in the last year. According to DeFi Llama, these three projects are responsible for around 20% of “Total Value Locked” (TVL) in DeFi. TVL is a metric that captures the idle capital locked in a DeFi protocol, which can be used to borrow or to trade against, or to do both.

Using blockchain data for DeFi revenue analysis

The transparency of blockchains allows for the auditing of every on-chain transaction. Token Terminal uses blockchain data to better understand exactly what each DeFi protocol is doing with the assets they manage and how profitable their strategies are. 

Revenue data from Token Terminal is limited to the core business revenue stream of each DeFi protocol and doesn’t capture revenue from other business streams. Marc Zeller, the integrations lead at Aave, told CoinDesk in an interview that beyond revenue generated from Aave’s core business of crypto lending, the protocol has generated roughly roughly $105,000 in fees from flash loans, $234,000 from liquidations and $5.2 million in Aave and Matic liquidity mining incentives since Tuesday, July 13.

For the purposes of revenue analysis in this article, we’ll also limit data to the core business stream of each DeFi protocol. By comparing the core business revenue of DeFi protocols, we can compare the performance of DeFi categories as a whole and see how these decentralized applications match up to their competitors. This type of comparable analysis can also help investors decide which DeFi assets are overvalued and which are undervalued, relative to the market. 

Here is a list of definitions and assumptions we used in our revenue analysis:

• Revenue is the total monetary value returned to token holders, liquidity providers and the protocol treasury from *only* the core business revenue (i.e. trading fees for decentralized exchanges, borrow interest for decentralized lending protocols).
• Earnings is strictly the share of revenue that goes to token holders and the protocol treasury.
• Total Value Locked (TVL) is the difference between the total amount deposited and the total amount borrowed from the protocol.
• Adjusted Total Value Locked (aTVL) is the total amount deposited into a protocol. 

Data for these metrics were aggregated from Token Terminal, DeFi Llama, DeFi Pulse and various other DeFi protocol dashboards such as Compound and Aave. 

DEXs versus decentralized lending platforms

The most direct multiples for measuring asset efficiency are Revenue / Adjusted Total Value Locked and Earnings / Adjusted Total Value Locked. The first metric measures the return on assets for all parties, including liquidity providers, token holders and the protocol treasury. The second metric shows cash flow to the protocol alone, which is dependent on the DeFi protocol’s fee structure.

Using Revenue / aTVL to measure return on assets (ROA), Uniswap and SushiSwap, both popular DEXs on Ethereum, are sitting at 29% and 20%, respectively. Aave and Compound fall below, coming in at 2% and 2.7% at the time of writing. 

Similar to traditional finance, ROA differs significantly between industries and does not fully encompass a protocol’s success. Furthermore, because the ROA calculated in our model uses revenue only from the core business of each protocol, the resulting figure could vary if other revenue streams were added. 

Even so, ROA metrics within DeFi help visualize the return all stakeholders in the platform have historically received. Using data from the past 180 days annualized, we can see that DEXs are generally the most productive with the assets they have under management and that lending platforms require more capital to generate the same amount of revenue.

Speaking to these results, Henri Hyvärinen, CEO of Token Terminal, noted that dividend distribution models for DEXs and other DeFi protocols are still in their early stages of development. 

“The dividend distributions in the [DeFi] crypto market are a bit premature. Most of the protocols are still akin to early stage startups, where the focus should be on reinvesting the money into growth,” Hyvärinen said in an email to CoinDesk. 

Validated takes

• Anthony Di Iorio, one of the eight co-founders of Ethereum, plans to sell his blockchain software company Decentral Inc. and focus on other business ventures not related to cryptocurrencies.  BACKGROUND: Di Iorio is looking to leave the crypto industry over concerns for his personal safety. He also mentioned that he wanted to focus on “larger problems,” stating that cryptocurrencies and blockchain technology are only “a small percentage of what the world needs.” (Article, Bloomberg)
• After months of parabolic growth, the supply of dollar-backed stablecoin tether (USDT) has suddenly stopped climbing. BACKGROUND: Since the end of May, the market capitalization of USDT has stayed constant at just over $63 billion, while tether’s largest competitor, USDC, has shown modest supply growth from $22 billion to $26 billion over the same time period. One possible reason for the lack of supply growth in USDT is mounting user mistrust over the token’s reserve composition. (Article, CoinDesk)
• Long-standing cryptocurrency management platform Shapeshift is executing a radical plan to fully decentralize its operations. BACKGROUND: In efforts to convert the company into a decentralized autonomous organization (DAO) run by token holders, Shapeshift is airdropping 340 million FOX governance tokens to past ShapeShift users and several well-known decentralized finance protocols, including Uniswap and Yearn. (Article, CoinDesk)
• The Maker Foundation responsible for guiding the development of the original Ethereum DeFi application. MakerDAO has announced it too will soon shut down in efforts to fully decentralize its operations. BACKGROUND: Rune Christensen, the founder of MakerDAO, said in a blog post that the foundation will dissolve “within the next few months” as part of a plan to put more power back in the hands of MakerDAO token holders. (Article, CoinDesk)
• Ethereum is gearing up for a backward-incompatible upgrade, also called a hard fork, in early August. BACKGROUND: Recently published community resources to help prepare users and dapps for the hard fork, dubbed London, include a countdown clock and an informative data visualization. (Blog post, Ethereum Foundation)
• Ethereum Classic, a version of Ethereum created in 2016, is preparing for a hard fork this Friday. BACKGROUND: The hard fork, code named Magneto, is aimed at enabling greater compatibility with the Ethereum network by mimicking some of the code changes rolled out on Ethereum back in April. (Blog post, Etherplan) 

Factoid of the week Open comms

Valid Points incorporates information and data from CoinDesk’s own Eth 2.0 validator in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post. 

You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is: 

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb. 

Search for it on any Eth 2.0 block explorer site!

New episodes of “Mapping Out Eth 2.0.” with Christine Kim and Consensys’ Ben Edgington air every Thursday. Listen and subscribe through the CoinDesk podcast feed on Apple Podcasts, Spotify, Pocketcasts, Google Podcasts, Castbox, Stitcher, RadioPublica, IHeartRadio or RSS.

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BNY Mellon has backed new crypto trading platform Pure Digital, following in the footsteps of fellow U.S. banking giant State Street, the Financial Times (FT) reported Wednesday.

• The New York-headquartered lender is to join a group backing the new bank-grade trading platform that’s set to go live in the coming days.
• State Street said in April it was providing the infrastructure for Pure Digital.
• Both the banks have voiced their intention to eventually start using the platform for trading itself, the FT said.
• The U.S’s oldest and second-oldest banks respectively, BNY Mellon and State Street join four other unidentified firms in backing the new platform, trading on which will commence with a bitcoin trade “within a week,” according to Pure Digital co-founder Campbell Adams, the FT’s report said.
• BNY Mellon and State Street have both announced the formation of crypto custody divisions this year, the former in February and the latter in June.

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Bitcoin has climbed above $31,000 alongside gains in global equity markets and fresh evidence of growing demand for cryptocurrency from traditional market participants. However, it may be too early to call a trend reversal higher.

The biggest cryptocurrency by market value was changing hands near $31,300 at press time, a 5% gain on the day, according to CoinDesk 20 data. The bounce comes a day after the cryptocurrency printed its first UTC close below $30,000 since New Year’s day and may have caught out some traders.

There was concern in the market that put-option sellers might take short positions in the spot/futures market on a break below $30,000, amplifying the price drop. Further, fund holdings dropped in the lead up to bitcoin‘s break below $30,000, signaling the absence of dip demand from large investors and higher odds of a continued sell-off.

Related: Bitcoin Rebounds Above $30K; Resistance Seen at $34K

Still, the dip below $30,000 was shallow and short-lived, possibly due to the risk reset in traditional markets. The U.S. equity market jumped over 1% on Tuesday as the focus shifted from concern about the delta coronavirus variant to growth, lifting banks and industrial stocks, according to the Financial Times. Futures tied to the S&P 500 are pointing to a positive open on Wednesday, with a 0.65% gain, according to Investing.com.

Bitcoin crossed above $30,000 early today. Buying pressure strengthened, pushing the cryptocurrency above $31,000, after Financial Times reported that Bank of New York Mellon had joined State Street and four other banks in backing the planned cryptocurrency trading platform Pure Digital.

Earlier this month, BNY Mellon, the largest custodian bank, entered into an agreement with Grayscale Investments to handle accounting and administration services for the digital asset manager.  Grayscale is a unit of Digital Currency Group, which also owns CoinDesk. Many investment banks have announced plans to launch crypto services this year, citing a surge in interest from its clients.

Crypto market sentiment may have also received a boost from the crypto derivatives exchange FTX’s record $900 million fundraise at an $18 billion valuation. The big number highlights long-term conviction in the crypto industry despite bitcoin, the industry leader, losing more than half of its value since mid-April.

Related: Market Wrap: What’s Next for Bitcoin After Break Below $30K

Some in the crypto community are associating the price recovery with the impending bitcoin-centered conference “The ₿ Word” scheduled for Wednesday. According to reports, Tesla’s CEO Elon Musk, one of the most famous crypto proponents, will participate in a live discussion with Square’s CEO Jack Dorsey and ARK Investment Founder Cathie Wood.

“Bitcoin bottoming just below Elon Musk’s entry price the day before he hosts a big conference to talk about Bitcoin sounds like something that would feel very obvious in retrospect,” one popular trader tweeted.

Nevertheless, some analysts remain cautious. “Bitcoin is still just chopping around,” Joel Kruger, a currency strategist at LMAX Digital, said. “I still think there is a risk for one more decent decline, but we’d need to see a break below the June low of $28,800 to trigger such a move.”

Bitcoin still remains well below the crucial 50-day moving average (MA) resistance. “Bitcoin has been grinding lower below its down trending 50-day MA, which can be considered initial resistance near $35,000, a breakout above which would target the 200-day MA near $44,000,” Katie Stockton, founder, and managing partner of Fairlead Strategies said in the weekly research note published Monday.

On the downside, the June low of $28,800 is a key support. “Everyone is talking about $30,000 like it’s a big deal, but in reality, it’s the June low at $28,800 which is the key level to watch,” Kruger said.

A breakdown may bring a quick sell-off to the former hurdle-turned-support at $20,000. “The area between $20,000 and $30,000 is lightly traded, there is fresh air between these levels,” ByteTree Asset Management’s CIO Charlie Morris noted in a blog post published Tuesday. “Price is supposed to move slowly through the heavy areas, and quickly through the light ones.”

Also read: Institutional Demand for Bitcoin Remains Weak: Glassnode

UPDATE (JULY 21 10:53 UTC): Updates bitcoin price, adds BNY Mellon report.

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Cryptocurrency exchange Bitstamp is looking to cash in on growing stablecoin demand by adding support for tether tokens denominated in euros (EURT).

• According to a press release on Wednesday, the exchange’s European users will be able to trade, deposit and transfer without needing to access other stablecoins first.
• Bitstamp Chief Product Officer Miha Vidmar said access to EURT will save its users time and money without reducing their overall purchasing power.
• The move comes as euro-backed stablecoin demand has been increasing, with Tether rivals such as Stasis’ EURS token siphoning some of Tether’s dominant market share.
• Overall demand for USDT and EURT has somewhat lessened in recent weeks on the back of regulatory pressures in China and a rise in stablecoin competition.
• Still, Tether CTO Paolo Ardoino said he “anticipate(s) a ready uptake of EURT on Bitstamp.”
• Bitstamp, domiciled in the U.K., is the world’s fifth-largest exchange in bitcoin trading volume, according to data by Bitwise.

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Argo Blockchain, a U.K.-listed bitcoin mining firm, said it expects to sell shares in the U.S. in the third quarter subject to regulatory approval.

• The London-based company said Wednesday it submitted a draft registration statement to the Securities and Exchange Commission (SEC) for the sale of American Depositary Shares.
• The sale is subject to SEC approval as well as the state of the market and other conditions.
• The number of shares and price range have not yet been set.
• Argo announced earlier this month intentions for a secondary listing on Nasdaq, without revealing any further details.

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Two co-founders of the Puerto Rico-based digital FV Bank say they have become the first in history to be awarded a U.S. patent for a stablecoin design based solely on government debt.

The patent application, filed last year on the back of a pre-existing patent by Nitin Agarwal and Miles Paschini, describes their instrument as a “tokenized crypto asset backed by sovereign debt.”

Its working name is Yuga Coin, which in Sanskrit means the “joining of two things,” or in this case, “generations,” Agarwal told CoinDesk in an interview on Tuesday.

Related: So THIS Is ‘And Then They Fight You’

“We aim to create multiple stablecoins that are government-friendly, Know-Your-Customer (KYC), anti-money laundering and Financial Action Task Force (FATF) compliant based on different currencies,” said Agarwal.

Each coin will be redeemable 1:1 against a corresponding national currency where they will be backed by national treasury instruments (including bonds and treasury notes) of the corresponding country.

Those stablecoins, intended to be created under the same Sanskrit banner and denominated in U.S. dollars or euros at first, are to be traded in a controlled network adjusted to rate the risk of trading with particular counterparties.

The argument goes that these would be more stable than other cryptos pegged to a fiat currency because they are not reliant on a single banking entity holding the collateral. “The stability of the tokenized crypto asset is more akin to the stability of the government debt,” the patent reads.

Related: Circle Reveals Assets Backing USDC Stablecoin

While the market is currently flooded with various versions of stablecoins pegged to either commodities or fiat currency (think USDT and USDC), the competition for such an instrument pegged to government debt is scarce.

“Avanti Bank (Caitlin Long) does speak about stablecoins backed by banks which hold all funds in government securities and no fractional reserves,” said Agarwal. “However, in order to make this multinational and multicurrency, the bottleneck of a bank has to be removed, which is the approach we are taking.”

A push to become more compliant in the eyes of regulators is currently at the fore of most crypto entrepreneurs’ minds in their pursuit of legitimacy. The FATF recently updated its guidance requiring virtual assets and their providers to comply with the same rules as traditional financial institutions.

Pandering to that notion, Yuga Coin also seeks to incorporate regulatory-approved identity verification standards and an incorporated risk score similar to that of a FICO credit score in traditional finance.

Agarwal said Yuga Coins would be verified by a regulated and trusted entity that is later recorded on-chain. Once a person has a verified identity in their wallet, the end-user is then in control of who can view their identity verification.

“We conceptualized this about three years back when the stablecoins market cap was less than $10 billion,” said Agarwal. “Today we see more people realizing this is the right way to run a stablecoin.”

The intention is to facilitate international government to corporations transactions, inter-government transfers fostering trade, global B2B and B2C transactions, and as a store of value among individuals.

Agarwal describes the design’s potential as possessing “innumerable possibilities” capable of providing a trusted means of holding and transacting money enabling “multiple innovations.”

“This is the only way to make stablecoins more government-friendly that foster innovation in banking, payments, finance, capital markets, and asset registry by using blockchain,” said Agarwal, who also noted the beauty of such stablecoins in their provision of a global, decentralized, immutable, and auditable way of transacting.

“Crypto is a solution to all anti-money laundering problems in the world and this project provides a way to achieve that.”

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Chinese insurance giant Pingan issued insurance policies using the digital yuan in Shenzhen, pushing trials for the central bank digital currency further into the financial services sector.

• Pingan’s local subsidiary has developed a COVID-19 insurance plan for medical staff in Shenzhen’s Nanshan district. Users who pay their premiums in e-CNY can receive discounts, the Shenzhen Special Zone Daily reported.
• The policy covers 300,000 yuan ($46,342) for death by the coronavirus, 50,000 ($7,723) yuan for a COVID-19 diagnosis, and 50,000 yuan for accidental death.
• While this is not the first time the digital RMB has been tested in the insurance sector, it is likely the first time an e-CNY insurance trial has been open to the public.
• In December 2020, local media reported that whitelisted digital yuan trial participants could use the digital yuan to buy insurance on Zhongan’s app. This trial was conducted in collaboration with China Construction Bank.
• Pingan will continue trialing the use of the digital yuan in insurance payments and claims settlement, a person familiar with the matter told Shenzhen Special Zone Daily.
• China’s digital RMB has so far been tested in a variety of retail scenarios, such as merchant payments and metro systems, as well as payrolls.
• As of the end of June, 34.5 billion yuan ($5 billion) had been processed in 70.75 million digital yuan transactions, the People’s Bank of China said last week.

Related Stories

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• Market Wrap: Sentiment Away From Risk Sends Bitcoin Toward $30K

A central bank digital currency is “probably necessary” for a competitive digital economy, the Bank of Canada said in a staff paper published Tuesday.

• A CBDC would give consumers a non-bank option to store their money risk-free, increasing competition in the market for retail deposits, argue the authors of the paper, titled “The Positive Case for a CBDC.”
• A digital currency would also allow users to bypass payment services providers such as credit cards, which antitrust watchdogs globally have said exhibit anticompetitive practices, the central bank said.
• The digital currency might be a “measured path” to combat big tech monopolies and negative externalities “at least” in payments, the authors argue.
• Central banks around the world are studying the feasibility of a digital currency, with China having made the most progress. The total number of transactions using the digital yuan as of the end of June was 70.75 million, spread among almost 21 million personal wallets and 3.5 million enterprise wallets, the People’s Bank of China said in a progress white paper last week, in which it confirmed smart contract programmability.
• The Bank of Canada paper argues that CBDCs endowed with programmability through smart contracts will engender vibrant innovation and competition in digital services.
• The bank also noted that smart contracts come with risks: software bugs, vulnerability to cyber attacks, scalability issues, and the difficulty of bringing off-chain data into the blockchain.
• The central bank reiterated its previous position that there are two potential scenarios under which it might issue a CBDC in Canada: either because cash was no longer widely used in Canada, or because an alternative digital currency was so widely used that it threatened the country’s monetary sovereignty. The bank said the latter scenario is unlikely.
• But even if a CBDC is issued, anticompetitive regulation will likely still be necessary, the paper said.

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Prominent Ethereum developer Virgil Griffith has been remanded in custody, Inner City Press, a public interest organization that’s known for investigating the banking industry, reported Wednesday.

• The developer was previously charged for violating U.S. sanctions law in North Korea by assisting the Communist country in circumventing sanctions through the use of crypto.
• U.S. prosecutors have been arguing Griffith should be returned to jail after violating his bail conditions earlier this month.
• It is unclear whether Griffith is being remanded based on his violation of bail conditions or something else.
• CoinDesk attempted to contact Griffith’s lawyer, but has yet to receive a reply.
• Jason Gottlieb of Morrison Cohen LLP, a lawyer not representing Griffith, previously said “it is insane to remand someone to custody for this purported bail violation. The prosecutors are being incredibly heavy-handed and punitive.”

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Prominent Ethereum developer Virgil Griffith has been remanded in custody, Inner City Press reported Wednesday.

• The developer was previously charged for violating U.S. sanctions law in North Korea by assisting the Communist country in circumventing sanctions through the use of crypto.
• U.S. prosecutors have been arguing Griffith should be returned to jail after violating his bail conditions earlier this month.
• It is unclear whether Griffith is being remanded based on his violation of bail conditions or something else.
• CoinDesk attempted to contact Griffith’s lawyer but are yet to receive a reply.
• Jason Gottlieb of MorrisonCohen LLP, a lawyer not representing Griffith, previously said “it is insane to remand someone to custody for this purported bail violation. The prosecutors are being incredibly heavy-handed and punitive.”

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• Virgil Griffith Should Return to Jail Pending Trial, Prosecutors Tell Judge

Dogecoin is out; bitcoin diamond is in. So go the rules of the S&P’s new benchmark for the crypto sector.

CoinDesk obtained a list of the 243 digital assets in the S&P Cryptocurrency Broad Digital Market (BDM) Index. A cursory analysis found that Wall Street’s latest attempt to measure returns from the “broad investable universe” ventured to crypto’s outermost rings. 

An eclectic mix of name-brand blockchains and lesser-known protocols are included in S&P’s BDM. Weighted according to the index-maker’s rulebook, the coins’ collective returns crunch down to a point-based performance figure. That figure hovered around 2,676 at press time, down 14% for the month of July.

Related: Meme Tokens Set for Third Straight Monthly Loss as Retail Traders Flee Dogecoin Copycats

For comparison, S&P’s bitcoin tracker showed it down 450.86 points, or 11.5%, in the same time period.

BDM certainly featured bitcoin and its end-of-June market cap of over $650 billion. But the index, whose average market cap was $4.8 billion according to S&P, largely consisted of small- and mid-cap cryptos whose stories are unknown to the average banker.

One such token is skycoin, a $15 million small-cap with about $387,000 in trading volume. CoinGecko ranked it in the 660 neighborhood by valuation. In November 2018, now-deceased crypto iconoclast John McAfee had the coin’s logo tattooed on his back. 

The index snubs some notable coins. XRP does not make the cut. Neither does monero or BSV.

Related: Grayscale Unveils DeFi Fund Linked to New CoinDesk Index

That might be a result of S&P’s inclusion policies. The committee overseeing BDM can nix a coin that “may be an unregistered security,” that has “privacy features” or that faces “potential market disruption,” according to governance documents.

But dogecoin, the bitcoin spin-off that best encapsulated the zany boom times of memecoin season, is nowhere on the list.

“It’s because they don’t have a white paper,” a source familiar with the selection process told CoinDesk.

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Bitcoin stabilized around $29,600 at press time Tuesday after breaking below the important $30,000 level on Monday. The world’s largest cryptocurrency has been in a downtrend trend since failing to hold an all-time high around $63,000 in April. Concerns about regulatory risks, less accommodative monetary policy and fading institutional demand have contributed to selling pressure over the past few months.

Edward Moya, analyst at the foreign exchange brokerage firm Oanda, described bitcoin’s trading environment as a “tug of war between bears and bulls,” in an email to CoinDesk.

“Bitcoin’s longer-term bullish outlook depends on some mainstream adoption across the U.S. and Europe, and for some that appears to be at risk,” wrote Moya. 

Latest prices

Related: So THIS Is ‘And Then They Fight You’

Cryptocurrencies:

• Bitcoin (BTC) $29,814.97, -3.13%
• Ether (ETH) $1,792.4, -1.86%

Traditional markets:

• S&P 500: 4324, +1.54%
• Gold: $1809.9, -0.2%
• 10-year Treasury yield closed at 1.213%, compared with 1.201% on Monday

The European Union Commission is proposing a revamp of anti-money laundering rules, which could include banning anonymous crypto asset wallets. That did not help market sentiment on Tuesday, according to Moya. 

“We see that at the federal and state levels, the falling price of bitcoin and resulting financial losses for many retail investors will only focus more regulatory scrutiny on this market,” wrote Timothy Butler, partner at Troutman Pepper, in an email to CoinDesk.

Related: Institutional Demand for Bitcoin Remains Weak: Glassnode

Aside from regulatory uncertainty, traders will also be alert for comments from Tesla CEO Elon Musk, who is scheduled to speak at The B Word conference on Wednesday. Musk’s appearance is especially timely given the potential for bitcoin to drop towards $25,000, which would mean Tesla could suffer a $300 million hit to its earnings, according to Shawn Tully, a senior editor at Fortune. 

Bitcoin volatility

Short-term implied volatility rose as bitcoin broke below $30,000, indicating that cryptocurrency options traders see sharp price moves ahead. Volume, however, remains low, in the $20,000 to $30,000 price range.  

“Continued pressure at these levels could see continuation to the downside,” wrote Nathan Cox, chief investment officer at digital asset investment firm Two Prime, in an email to CoinDesk.

Futures backwardation

Bitcoin futures on the Chicago Mercantile Exchange (CME) have shifted into “backwardation,” which is when futures trade at a discount to the spot price. This is the second time that regulated futures on the CME are trading at backwardation in the last seven days, according to a Tuesday report by Arcane Research.

“Institutional investors seem very cautious at the moment, and in general seem to be in the process of de-risking,” Arcane wrote. 

“The declining trend in the futures market indicates that fear is accumulating as long as traders are no longer willing to pay a premium for their exposure.”

Bitcoin drawdown

Bitcoin’s drawdown, or the percentage decline from the April peak around $63,000, is roughly 50%. Typically, drawdowns that exceed 50% can last for several months, similar to 2018 and the second-half of 2019. 

Two decisive daily closes below $30,000 are needed to confirm a breakdown, wrote Katie Stockton, managing director of Fairlead Strategies, in an email to CoinDesk. For now, secondary support is at $27,000, which bitcoin will need to hold in order to maintain a long-term uptrend.

Weak institutional demand

The Purpose Exchange-Traded Fund, one of the first approved bitcoin exchange-traded products (ETPs), has seen a slowdown in net inflows this week after experiencing a period of relatively strong demand in May and June, according to a report by Glassnode. 

The slowdown suggests institutional demand for the largest currency by market cap remains weak across these regulated products, according to Glassnode. 

Where to from here

Among 42 cryptocurrency experts surveyed by Finder, 61% think that bitcoin is currently undervalued, while the experts on average expect bitcoin to reach $66,284 per BTC by the end of 2021. 

“Adoption by corporations and institutional investors paired with a loose monetary policy and high asset inflation will propel bitcoin to six figures before the end of this year,” Morpher CEO Martin Fröehler, the most bullish among the panelists, told Finder. 

University of Canberra senior lecturer John Hawkins, one of the most bearish panelists, said that government adoption of bitcoin will adversely affect the cryptocurrency’s price. “I’m assuming El Salvador adopting it as legal tender puts a floor for a while. But after the price has dropped a lot, they may remove the legal tender status.”

Altcoin roundup

• DOGE: A recent shakeout in meme tokens, a sector best known by the Shiba Inu-themed dogecoin, indicates that retail investors are exiting their positions in cryptocurrencies as recent market sell-offs have spooked many crypto newcomers. Momentum appears to have dissipated in an oversaturated market for meme coins, wrote CoinDesk’s Muyao Shen.
• USDC: Circle, a global payments company, was one of USDC’s creators. It published a breakdown of its assets backing the stablecoin for the first time in its latest attestation report, which was dated July 16. According to the report, about 61% of its tokens are backed by “cash and cash equivalents,” meaning cash and money market funds, wrote CoinDesk’s Nikhilesh De.

Relevant news

• FTX Valued at $18B in Massive $900M Series B
• Rothschild Investment Corp More Than Tripled Exposure to Bitcoin in Second Quarter
• BlockFi Receives Cease and Desist Order From New Jersey Attorney General
• Turkey Plans to Present Law on Cryptocurrencies in October

Other markets

Most digital assets on CoinDesk 20 ended up lower on Tuesday. In fact, everything was in the red except for dollar-linked stablecoins. 

Notable losers: 

nucypher (NU) -7.15%

filecoin (FIL) -6.62%

algorand (ALGO) -6.41%

Related Stories

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Bank of America’s prime brokerage unit has started the clearing and settlement of cryptocurrency exchange-traded products (ETPs) for hedge funds in Europe, according to three sources with knowledge of the matter.

This is the second recent move on the part of the traditionally conservative bank in the volatile cryptocurrency arena. As reported last week by CoinDesk, Bank of America has also approved the trading of bitcoin futures for some clients and is clearing cash-settled contracts.

Bank officials may have felt they could not ignore an asset class that has seen numerous companies dive in. The demand for products such as ETPs has been increasing. 

Related: EU Policymakers Propose Tighter Regulation of Crypto Transfers

In February it emerged that Goldman Sachs, ICAP, JPMorgan and UBS have all been purchasing the 21Shares Polkadot ETP for clients, according to Bloomberg data. In June, ETC Group launched the first bitcoin ETP in the U.K. on the Aquis Exchange in London.

There has also been an increasing number of cryptocurrency ETPs being listed on the SIX exchange in Switzerland and the Deutsche Boerse’s Xetra market in Germany. The offerings range from blue-chips (bitcoin, ether) to the exotic (cardano, polkadot.)

According to CoinDesk’s sources, hedge funds are using Bank of America’s prime brokerage unit to access a raft of crypto ETPs approved by European regulators. The vehicles allow big firms to invest in various corners of the crypto universe without investing in crypto directly, but through a security that tracks the performance of various digital assets.

A Bank of America spokesperson declined to comment.

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