BitGo: Crypto Water Cooler — Oct 30
GM. It’s Wednesday, October 30.
Newsmakers
Why Bitcoin ETF Options Are a Big Deal
Bitcoin took another step toward the mainstream last week as the U.S. SEC approved proposals from the NYSE and Cboe to list and trade options for all spot Bitcoin ETFs (after previously approving them for BlackRock’s IBIT last month). That’s a big deal, given options’ increasingly prominent role in traditional financial markets and the growth ($) of interest in crypto derivatives worldwide.
Stock options were first launched in U.S. financial markets in 1973. Since then, options trading has expanded to include indices, currencies, commodities, and ETFs. According to the Futures Industry Association, a trade organization for derivatives markets, options volume reached 137B contracts traded in 2023, a 64% annual increase. Some analysts estimate the global options market may be worth over $1 quadrillion.
Bitcoin ETF options increase the range of crypto-related investment products available on traditional exchanges. They create new ways for institutional and sophisticated retail investors to incorporate Bitcoin into their investing strategies. They increase market liquidity, improve price accuracy, and reduce volatility.
Exchanges will initially implement what ETF.com describes as “conservative position limits” of 25,000 contracts on the same side of the market for each Bitcoin ETF option. This limit is lower than many other ETF options. A contract represents one hundred shares of the ETF.
A date for trading has yet to be set as the CTFC, which regulates derivatives markets in the U.S., still needs to sign off.
Read more →Quartz
Investors Lose Account Access as South Korea Enforces New Exchange Rules
Crypto is popular in South Korea with surveys showing forty to fifty percent of people under forty invested. Regulators there have been performing a balancing act, trying to protect investors while supporting industry growth. But a new measure enacted in response to the May 2022 collapse of Terraform Labs has left tens of thousands of people without access to 50B wons’ (~$35MM) worth of digital assets.
The country amended its financial reporting laws in 2021 to require crypto platforms to have a partner bank to provide fiat-to-crypto services. The aim was to reduce the risk of money laundering and price manipulation. Although the five biggest exchanges (Upbit, Bithumb, Coinone, Korbit, and Gopax), which account for 99.6% of trading activity, could form these partnerships, smaller ones struggled to do so, limiting them to crypto-to-crypto trading.
Then came the collapse of Terraform (founded by the now infamous South Korean Do Kwon), triggering a $40B market loss. Defrauded investors, regulators, and the general public pushed for stronger regulations. The government responded with the Act on the Protection of Virtual Asset Users, which took effect this July. Exchanges must now keep the equivalent of 80% of total user funds in a secured cold wallet and carry insurance to compensate customers for losses due to system failures or hacks.
Enforcement of the new provisions appears to have been the last straw for smaller exchanges. As of September, eleven had closed their doors with at least one citing the challenging business environment as a factor. With the closures, nearly 34,000 people lost access to a total of 17.8B won ($12.8MM). Three exchanges have suspended activity without closing, putting another 30.7B won ($22.2MM) in limbo.
The Act does provide a method for users to reclaim their assets. The newly created Digital Asset User Protection Foundation will act as a trustee of funds left in closed exchanges and help investors to navigate the recovery process. How long that will take is unknown.
Read more →cryptonews
How Improvements in Blockchain Infrastructure Are Powering New Apps
One key element of the “memecoin supercycle” theory that’s been making the rounds of the crypto media is that traders don’t care about technology-oriented projects. Ironically, though, tech advances to infrastructure are enabling new applications—including pump.fun, the app that has helped to power the meme coin explosion. Venture capital firm a16z devotes a section of its “State of Crypto Report 2024” to detailing the impact improved speed and scalability are having on the market.
Multi-billion-dollar trading of designer NFT collections on secondary markets characterized the early market. That’s shifting to “social collecting experiences” on Zora, Rodeo, and other applications where people can mint their own collections. With the fee structures a few years ago, this would have been “largely inconceivable.”
The growth of on-chain gaming is pushing the limits of scaling. Adventure role-playing games like Pirate Nation consistently use the most gas per second on Ethereum rollups, something that would also have been unlikely without the reduction in fees following the Dencun upgrade.
Social networks have become one of the “hottest builder subcategories,” thanks to applications like Farcaster, which dovetails a person’s social profile with their wallet. Farcaster raised $150MM in its Series A funding round in May 2024.
A16z declined to say if all this means crypto has entered “the fifth wave of the price-innovation cycle,” which sounds like VC-speak for more improvement is needed. In 2025, we could see improvements when well-funded (and well-hyped) projects come to fruition, such as Berachain, an “EVM-identical” L1 blockchain using proof-of-liquidity, and Monad, which reduces RAM requirements by allowing most storage to occur on SSD.
If those tech advances are hard to care about (let alone understand), the bottom line is that they’re meant to drive further improvements in things people do care about such as speed and cost. When the tech melts into the background such that only the technologists have to care, the industry will have fully matured.
Read more →a16zcrypto
News In Brief
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Business of Crypto
Regulation and Security
DeFi and Web3
Midweek Market Pulse
Total Market Cap: $2.44T – 7-day change as of Tuesday 10/29/24 12 PM EST: +5.2%
The crypto market surged 5.2% to $2.44T over the past week, shaking off concerns stemming from a Wall Street Journal article ($) reporting that Tether (USDT, +0.0%) was being investigated by the U.S. government, which briefly shook the market. Tether’s CEO Paolo Ardoino dismissed the story as “old noise.”
Momentum returned as the market looked ahead to next week when the U.S. presidential election will be decided along with the Fed’s next interest rate move. CME FedWatch now says there is a 98.3% probability that the Fed will lower interest rates from 475-500 basis points to 450-475 basis points (up from a 46.7% probability just a month ago).
Bitcoin (BTC, +7.6%) climbed nearly 5.4% in a 24-hour period and crossed $72,000 at time of writing, bringing it within range of its all-time high of $73,835. In another milestone for the Bitcoin ETFs, public filings show that Emory University has accumulated roughly $15MM worth of the Grayscale Mini BTC Trust, making it the first college endowment fund to invest in them, according to Bloomberg. Bloomberg Senior ETF analyst Eric Balchunas writes that “every institution type is now represented” in BTC ETFs.
Ethereum (ETH, +1.0%) barely joined in the broader rally. Solana (SOL, +7.4%) topped the $180 mark with large-cap Solana meme coins like Dogwifhat (+8.0%) and Popcat (+18.6%) trending higher. Jupiter (JUP, +7.5%), a major platform for trading meme coins and other Solana-based tokens, was also up significantly. Memecoin trading has also led to a big increase in trading volume on Solana, with October volume now at $47.3B, far higher than September’s $26.3B.
The Last Word
Options
: Options give the holder the right—but not the obligation—to buy or sell an underlying asset at a predetermined price on or before a specific expiration date.
/ Options are used to gain exposure to market movements with less upfront capital.
About BitGo
BitGo provides the most secure and scalable solutions for the digital asset economy, offering regulated custody, borrowing and lending, and core infrastructure to investors and builders alike.
Founded in 2013 — the early days of crypto — BitGo pioneered the multi-signature wallet and later built TSS to improve upon other companies’ MPC offerings. Between multi-sig and TSS, BitGo offers the safest technology on the market and safeguards over 600 tokens across a wide variety of blockchains.
Over the years, BitGo has expanded from offering wallets into providing a full-suite solution that lets clients hold assets safely and then put them to work.
BitGo launched BitGo Trust Company in 2018, providing fully regulated, qualified cold storage to complement BitGo Inc’s original hot wallet solution. In 2020, BitGo launched BitGo Prime, which allows its clients to trade, borrow, and lend. Moreover, BitGo also provides access to DeFi, staking, NFT wallets, and beyond, and serves as the world’s sole custodian for WBTC, or wrapped Bitcoin.
Today, BitGo is the leader in digital asset security, custody, and liquidity, providing the operational backbone for more than 700 institutional clients in over 50 countries — a list that includes many regulated entities and the world’s top cryptocurrency exchanges and platforms. BitGo also processes approximately 20% of all global Bitcoin transactions by value.
For more information, please visit www.bitgo.com.
©2024 BitGo Inc. (collectively with its affiliates and subsidiaries, “BitGo”). All rights reserved. BitGo Trust Company, Inc., BitGo Inc., and BitGo Prime LLC are separately operated, wholly-owned subsidiaries of BitGo Holdings, Inc., a Delaware corporation headquartered in Palo Alto, CA. No legal, tax, investment, or other advice is provided by any BitGo entity. Please consult your legal/tax/investment professional for questions about your specific circumstances. Digital asset holdings involve a high degree of risk, and can fluctuate greatly on any given day. Accordingly, your digital asset holdings may be subject to large swings in value and may even become worthless. The information provided herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. BitGo is not directing this information to any person in any jurisdiction where the publication or availability of the information is prohibited, by reason of that person’s citizenship, residence or otherwise.
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