August 4, 2021 | Issue #180

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MUST READS

A Sideways State

Every now and then we like to remind our readers to take a step back and look at the big picture. Today's another one of those days.

If you ask around, the current narrative for the "common" investor is that crypto (specifically bitcoin) is in yet another bear market. After all, prices collapsed nearly 50% in the spring.

But we don't necessarily agree.

Earlier this year, the market was overheated. There was too much speculation. And since the correction, the latest BIG event that likely scared off investors was the spree of crackdowns across China.

Ever since, however, it appears that bitcoin has found a new floor. VC investment into the sector continues at a rapid pace... Demand is still rising (crypto population has doubled to over 200M users since January)... Institutions/funds are still gobbling up the free float... And supply, which has become more liquid since prices fell in May, is only as liquid as it was in December 2020.

At the end of the day, this all suggests the market is at least in a sideways state. "Bull" or "Bear" – it doesn't matter. All the fundamentals are still in place. And let's not forget that BTC holders are still sitting on ~240% gains from exactly one year ago.

Miami’s Crypto Token Is Here

Mining for MiamiCoin, the city’s new crypto token, has begun.

The startup behind it all is CityCoins, and the makers just launched on Product Hunt to explain the concept in-depth (you can check it out here).

MiamiCoin (the first city and token from CityCoins) is almost like an opt-in tax where 30% of the value is given to the city itself to improve the city. But unlike traditional taxes, anyone in the world can buy in and potentially benefit in the upside if it appreciates. After 30% for the city, the remaining 70% can yield STX and Bitcoin rewards.

CityCoins are built on open-source software, so developers can also start creating applications and experimenting with use cases. Imagine Miami-focused apps that use the tokens for rewards or entrance into spaces. Such apps can drum up more funding for Miami.

CityCoins protocol states that the city’s crypto treasury can’t be used for purposes other than investing in city initiatives, which could include initiatives from public works projects to attracting tech startups.

San Francisco is next in line for its token, and CityCoin has referenced other startup cities on the horizon worldwide.

NFT Insanity

Over the weekend, OpenSea, a popular marketplace for non-fungible tokens (NFTs), generated roughly $95 million in trading volume – nearly 5x more than during the whole year of 2020.

For context, in all of 2020, OpenSea did about $21M in total transaction volume. Over the weekend, OpenSea did $95M.

So what caused it?
The weekend surge began when entrepreneur Gary Vaynerchuk bought a CryptoPunk for 1,600 ETH ($3.7 million). On the same day, a pseudonymous investor spent 2,700 ETH ($7 million) on 88 CryptoPunks. Then there was speculation, since retracted, that an institutional investor had gobbled up more than 100 of the expensive collectibles. What's more? Apparently, somebody just put a rare CryptoPunk NFT for sale for $90.5 million.

Soo what's a CryptoPunk?
One of the earliest NFT collections, CryptoPunks are a collection of 10,000 pixelated faces. It's the most valuable NFT project and each of the 10,000 avatars represents any of four species—including zombies and aliens—and has different facial features and headgears. Rare ones can obviously sell for millions of dollars. (Learn more about the top NFT avatars here)

Alright, will this continue?
While some believe that buying a CryptoPunk is like buying the Mona Lisa two years after it was painted, others think it’s a bubble that’s about to burst. How bout you?

Related: Art Blocks NFTs Soar as Savvy Collectors Snap Up Edgy Pieces

Fake Bitcoin News Wave Hits Apple, Amazon, and Saudi Aramco

Just a reminder... Don't believe everything you read online.

Three stories hit the newswire this week that turned out to be false. But that didn't stop major news outlets from reporting it.

Biased news, be gone.

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DEEP DIVE

FTX Trilogy, Part 1: The Prince of Risk

‍FTX is set to be one of the most consequential companies of the next decade. The cryptocurrency exchange has risen to prominence in a little over two years, securing an $18 billion valuation. It’s done so through insane speed, balanced aggression, product innovation, and a unique culture.

To understand the man behind the madness, The Generalist unpacks the man at the helm, the company itself, and its future.

Related: FTX Sponsors League of Legends Esports Series in 7-Year Deal

VC Investment Into The Sector Continues At A Rapid Pace

As we discussed last week, Q2 was the biggest quarter ever for private investment in crypto. Covering it recently was Galaxy Digital with another great report. Here's what you need to know:

While the total dollar amount invested rocketed to all-time highs, deal count remained below the Q1 2018 peak
In Q1 2021, most capital went to later stage crypto companies for the first time in the history; Q2 saw a return to the norm, with most VC money again going to earlier stage companies
The number of pre-seed deals continues to trend downward, accounting for only 23% of deals, the lowest ever. Meanwhile, the portion of later-stage deals continues to climb, reaching an all-time high of 13%
Average deal size and valuation both breached previous all-time highs in Q2, continuing a trend of growth that’s largely persisted since Q1 2019. The money chasing available deals has become too great, resulting in an increasingly competitive market for investors
Valuations for crypto VC deals have dramatically surpassed the broader VC market, by 34% in Q1 and more than 50% last quarter. This demonstrates that institutional money continues to seek allocation to the crypto ecosystem in outsized proportion to other industries

The Billion User Table

The global transition from passwords to private keys will be bigger than most realize.

It's the start of digital private property. It limits the power of corporations and states alike. It's universal basic encryption. And it's the billion user table.

REGULATORY FRONT

The Cryptocurrency Surveillance Provision Buried In The Infrastructure Bill Is A Disaster For Digital Privacy

After months of negotiation, there appears to be bipartisan consensus on an infrastructure bill. Good? Bad? Eh, whatever...

But buried deep inside the bill was a $28 billion surprise for the crypto industry: Congress plans to tax various actors ("brokers") in the crypto system to help pay for infrastructure spending.

Making things a bit scarier, lawyers believe the way the language is structured would mean that miners would also fall under the definition and therefore be forced to collect personal information of people in the blocks they mine. This is impossible and means that if this bill is passed with this section included it would essentially outlaw mining in the US overnight due to the inability of miners to comply. Here's a good TLDR from Jake Chervinsky.

So is everyone just an idiot in Congress or are they trying to stifle bitcoin?

Luckily, the crypto cabal and individual members of the government began to push back. See responses from: The Blockchain Association, Senator Pat Toomey, Senator Ron Wyden.

By Sunday, positive changes were being made... but it's still not enough. Hopefully, with the bill slated to be voted on this week, we will see the changes the industry wants to be implemented.

Let's all not forget that this is happening inside of the infrastructure bill... a bill meant to support bridges, roads, and (in today's world) EV charging stations. We just saw how one very small provision can be so parasitic to individuals... now just imagine what else is in the trillion-dollar, 2700-PAGE bill...

SEC Chairman Sights On DeFi, Crypto Lending And More In Expansive Speech On Regulation

The SEC will regulate cryptocurrency markets to the maximum extent possible using its existing authority, Chairman Gary Gensler said Tuesday, while also calling on Congress to grant the agency more scope and resources to oversee the sector.

Calling the asset class rife with “fraud, scams, and abuse,” Mr. Gensler signaled the SEC is likely to become more active in policing crypto trading and lending platforms, as well as stablecoins.

"We just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West... We have taken and will continue to take our authorities as far as they go.”