Author: Faith Yakubu

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Settlement Details

Crypto lending platform Abra, officially known as Plutus Lending LLC, has settled with the U.S. Securities and Exchange Commission (SEC) following charges related to the sale of unregistered securities and operating as an unregistered investment company. The settlement includes civil penalties, the amount of which is yet to be determined by the court.

Allegations and Abra Earn Program

Abra Earn, a program offered by the startup, allowed retail investors to deposit their crypto assets in exchange for interest, with promotions describing returns as generated “auto-magically.” At its peak, the Abra Earn program managed approximately $600 million in assets, including nearly $500 million from U.S. investors. The SEC’s complaint alleges that Abra exercised discretion in investing consumer funds to deliver high yields and operated as an unregistered investment company for at least two years.

Regulatory Issues

The SEC’s complaint highlights that Abra held more than 40% of its total assets, excluding cash, in investment securities, including loans of crypto assets to institutional borrowers. In June 2023, Abra began to wind down the Abra Earn program and instructed U.S.-based customers to withdraw their assets.

Stacy Bogert, associate director of the SEC’s Division of Enforcement, stated that Abra sold nearly half a billion dollars of securities to U.S. investors without adhering to registration laws intended to provide investors with accurate information for informed decision-making.

Investor Impact and Company Status

Abra’s investors included notable entities such as Amex Ventures, Blockchain Capital, and the Stellar Development Foundation. At one time, the startup achieved a $500 million valuation. The SEC’s action follows a trend of similar crypto lenders, including BlockFi, Celsius, and Voyager, which filed for bankruptcy in 2022.

An Abra spokesperson clarified that no consumers were harmed by the settlement or the wind-down of Abra Earn. All assets, including accrued interest, were transferred to U.S. customers’ Abra Trade accounts in 2023. Abra continues to operate in the U.S. through Abra Capital Management, an SEC-registered investment adviser.

Conclusion

The settlement underscores the regulatory challenges facing crypto firms and highlights the importance of compliance with securities laws. Abra’s case follows a pattern of increasing scrutiny and enforcement actions within the cryptocurrency sector.

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Hong Kong’s spot Bitcoin exchange-traded funds (ETFs) have crossed a significant milestone, surpassing HKD$2 billion (approximately $256 million) in assets under management (AUM). This achievement highlights the growing interest in cryptocurrency investments within the region.

Initial Performance and Comparisons

Despite reaching this milestone, Hong Kong’s Bitcoin ETFs have had a slower start compared to their U.S. counterparts. Launched on April 30, the ETFs attracted $262 million in initial inflows, with $14 million coming from actual asset inflows during their first week. This is notably less than the billions that flowed into U.S. Bitcoin ETFs when they debuted in January.

Current Holdings and ETF Breakdown

Over the past week, the three Bitcoin ETFs in Hong Kong have seen a net inflow of approximately 247 BTC, bringing their total holdings to around 4,450 BTC. The AUM for these ETFs is currently HKD$2.1 billion (about $269 million). The breakdown of assets is as follows:

• ETFs managed by China Asset Management and Harvest Asset Management, in collaboration with digital asset trading platform OSL, hold over HKD$1.3 billion ($167 million).
• The third ETF, which operates independently of OSL, holds HKD$776 million ($99.5 million), representing about 42% of the market.

Market Challenges and Future Outlook

The slower uptake of Bitcoin ETFs in Hong Kong can be attributed to fewer options compared to the 11 offerings available in the U.S. market. Many Hong Kong investors may be cautious about diving into the cryptocurrency space, preferring to observe initially. This cautious approach presents challenges for Hong Kong as it aims to establish itself as a global cryptocurrency investment hub.

Innovative Features and Potential for Growth

Hong Kong’s Bitcoin ETFs offer unique features, such as the ability for in-kind creations, where actual cryptocurrencies are used to create new ETF shares, unlike the cash creation limited to American ETFs. This feature could enhance investor confidence and potentially increase participation over time.

Conclusion

Hong Kong’s Bitcoin ETFs have made significant strides but still face challenges in gaining market traction compared to their U.S. counterparts. However, innovative features and growing interest suggest the potential for future growth in the region’s cryptocurrency investment landscape.

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Bitcoin briefly touched $65,000 for the first time in about three weeks, driven by renewed interest in US exchange-traded funds (ETFs) and expectations of a Federal Reserve rate cut. The cryptocurrency surged as much as 1.2% to $65,030 on Monday before retreating slightly to $63,780 as of 9:19 a.m. in New York. Last week, Bitcoin saw a notable 7.4% increase, marking its largest weekly gain since mid-July.

Fed’s Influence on Bitcoin

Federal Reserve Chair Jerome Powell’s recent comments indicating potential rate cuts have provided a favorable backdrop for global markets, including cryptocurrencies. Powell’s signals have spurred significant activity in Bitcoin ETFs, with a net inflow of $252 million recorded on the day of his speech. This represents the highest inflow in over a month and reflects a seven-day streak of positive inflows into US spot Bitcoin ETFs.

Divergent Trends in Cryptocurrency ETFs

While Bitcoin ETFs are experiencing robust inflows, Ether-related products are facing challenges. Investment products holding Ether saw a $36 million net outflow last week, and a US spot-Ether ETF experienced a net outflow on August 23. Ether itself dropped by as much as 2.1% on Monday.

Market Reactions and Other Tokens

In addition to Bitcoin’s rise, Toncoin, associated with Telegram’s blockchain, saw losses following the detention of Telegram co-founder Pavel Durov in France. Other major cryptocurrencies remained relatively stable amid these developments.

Looking Ahead

Cici Lu McCalman, founder of blockchain adviser Venn Link Partners, anticipates that a rate cut in September could further boost Bitcoin, emphasizing that market attention remains fixed on the Fed’s next moves.

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Grayscale Introduces Avalanche Trust

Grayscale Investments, a leading cryptocurrency asset manager, has introduced the Grayscale Avalanche Trust, providing investors with exposure to the AVAX token. This token is crucial for transaction fees and securing the Avalanche blockchain, known for its high-speed and scalable capabilities as a competitor to Ethereum.

This launch is part of Grayscale’s broader expansion into decentralized finance and AI tokens. The firm has recently introduced several new products, including decentralized AI token funds. The Avalanche Trust announced on Thursday, marks a significant addition to Grayscale’s suite of investment options.

Growing Interest in Crypto Investment Products

Interest in publicly traded cryptocurrency products has surged since the Securities and Exchange Commission (SEC) approved the first Bitcoin (BTC) ETFs for U.S. trading in January. Grayscale, a prominent player in the industry and part of Digital Currency Group, has been a pioneer in bringing digital assets to traditional investors. Its Bitcoin Trust was among the first ETFs to receive approval, and it recently transitioned its Grayscale Ethereum Trust (ETHE) to an ETF structure.

Under the leadership of new CEO Peter Mintzberg, who took over from Goldman Sachs, Grayscale now offers over 20 crypto investment products. Recent additions include the Grayscale Bittensor Trust and Grayscale Sui Trust, focusing on the TAO and SUI tokens, respectively.

Rayhaneh Sharif-Askary, Grayscale’s head of product and research, highlighted Avalanche’s role in advancing real-world asset (RWA) tokenization through strategic partnerships and its multi-chain structure. At the time of writing, the AVAX token was trading at approximately $23.

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M^0’s New Partnership with Fireblocks

M^0, a protocol for minting stablecoins backed by U.S. Treasury bills, has announced its collaboration with Fireblocks to provide advanced cryptocurrency custody services. This integration ensures that institutions using Fireblocks for crypto key management can seamlessly operate with M^0’s stablecoin-minting and validation system.

M^0 aims to address the limitations of current stablecoin systems, where yield is either retained by token issuers or distributed to token holders. With Fireblocks’ key-management technology, M^0’s protocol enables users to transfer, update collateral balances, retrieve, burn tokens, and interact with validators to verify reserves more efficiently.

Revolutionizing Stablecoin Yield Management

M^0 Labs, the developer behind the protocol, highlights a unique feature of its business model—flexible revenue sharing. Unlike traditional models where issuers like Tether (NASDAQ) or Circle (USDC) either keep all the yield or pass it entirely to token holders, M^0 offers a more versatile approach. Users can choose to retain the full yield or distribute it based on custom criteria, thus promoting a more dynamic ecosystem.

The protocol, governed by the decentralized M^0 Foundation, allows for complex yield management and incentivization directly on-chain. M^0 has already achieved a collateralized float of approximately $30 million, with reserves validated on-chain every 30 hours. Note that the service is not available to users in the U.S.

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CryptoPunks’ Continued Dominance in NFT Sales

CryptoPunks has achieved a significant milestone, leading CryptoSlam’s daily non-fungible token (NFT) sales chart with a notable US$1.29 million on Wednesday. This marks the third consecutive day CryptoPunks has topped the sales rankings.

Despite CryptoPunks’ impressive performance, there is speculation within the community regarding a potential decline in the value of these iconic NFTs. Investor Deepak Thapliyal recently sold CryptoPunk #5822, which was previously valued at US$24 million. Although the exact sale price remains undisclosed, it is speculated that the transaction, which involved approximately 5,000 Ether (US$12.8 million), might have resulted in a loss.

Market Overview and Other Notable NFT Sales

On Wednesday, CryptoPunks saw 15 transactions involving 11 unique buyers and 13 sellers, with an average sale price of US$86,582. The day’s performance contributed to CryptoPunks’ all-time sales volume, which has now reached US$2.87 billion, placing it third in the NFT market.

In second place for the day, Bored Ape Yacht Club recorded US$861,724.21 across 26 transactions. Mythos Chain’s DMarket followed with US$738,879 in sales from a substantial 25,578 transactions. Pudgy Penguins secured fourth place with US$587,545 in sales. Guild of Guardians Heroes and Mutant Ape Yacht Club rounded out the top sellers with US$464,522 and US$433,094 in sales, respectively.

Ethereum (ETH), the blockchain platform hosting CryptoPunks, led all blockchains with US$6.46 million in sales.

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Discussion Overview

In a recent roundtable discussion led by Rob Nelson, with insights from Michael Wagner, CEO of ATMTA, and David Gokhshtein, CEO of Gokhshtein Media, the focus was on how blockchain technology is reshaping monetization in the gaming industry. The panel explored how this transformation could expand the gaming audience while navigating the challenges posed by traditional revenue models and emerging player-driven monetization.

Industry Reluctance

Rob Nelson highlighted a key issue: major players in the entertainment industry, including gaming, are hesitant to embrace greater monetization opportunities for players. This reluctance stems from a fear of disrupting existing revenue streams. Nelson believes that industries such as film and sports might eventually see the benefits of allowing fans to monetize their engagement, but the gaming sector remains cautious. Despite this, Nelson is optimistic about a gradual adaptation to these changes.

Gameplay and Audience Expansion

Michael Wagner emphasized that the growth of the gaming audience will depend on developing engaging and repeatable gameplay experiences. He acknowledged that while the industry is not yet fully there, a strategic development roadmap is in place. Wagner is confident that as gameplay loops become more compelling, mainstream audiences will increasingly engage with blockchain-based platforms.

Simplifying Technology for Adoption

David Gokhshtein agreed with Wagner’s assessment but also stressed the importance of making new technologies more accessible. He pointed out that younger generations are already adopting NFTs and cryptocurrencies. Gokhshtein suggested that if a major player like Epic Games were to integrate blockchain technology, the transition from Web2 to Web3 could accelerate. He believes that a stable ecosystem is crucial for mainstream acceptance, and once established, it will drive significant growth in the gaming industry.

Future Outlook

The discussion highlights a pivotal moment for the gaming industry as it navigates the integration of blockchain technology. The shift toward player-driven monetization and the expansion of audience engagement is promising but faces resistance from established players. As technology continues to evolve and gameplay experiences improve, the potential for blockchain to revolutionize gaming monetization becomes increasingly tangible.

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Bitfarms Expands Through Acquisition

Bitcoin miner Bitfarms Ltd. (NASDAQ:BITF) has announced a strategic move to acquire its rival, Stronghold Digital Mining Inc. (NASDAQ:SDIG), for $175 million in a combination of stock and assumed debt. The offer values Stronghold at $6.02 per share, a substantial premium compared to its last closing price of $2.93. This acquisition reflects Bitfarms’ strategy to diversify its revenue streams beyond cryptocurrency mining.

The deal includes $125 million in Bitfarms stock, offering 2.52 shares of Bitfarms for each share of Stronghold. This represents a 71% premium over Stronghold’s 90-day volume-weighted average price on the Nasdaq as of August 16. Following the announcement, Stronghold’s shares saw a premarket increase of 64% to $4.80, while Bitfarms’ shares decreased by 7% to $2.19.

Strategic Moves in the Bitcoin Mining Industry

The Bitcoin mining industry is facing significant challenges, including a 50% reduction in the block reward that miners receive for verifying transactions, effective April 2024. This halving event pressures miners to cut costs, particularly in power consumption, and to invest in more energy-efficient equipment. The industry is adapting by seeking alternative revenue sources such as high-performance computing (HPC) and artificial intelligence (AI) processing.

Bitfarms’ CEO Ben Gagnon highlighted that the acquisition of Stronghold is a crucial step in securing the company’s future. The move aims to enhance Bitfarms’ vertical integration with power generation, expand its energy trading capabilities, and secure high-potential sites for HPC/AI applications with significant expansion potential. This diversification is intended to increase long-term shareholder value.

Ongoing Industry Consolidation and Competition

Bitfarms is also navigating increased competition from Riot Platforms Inc. (NASDAQ:RIOT), which had previously attempted to acquire Bitfarms in June 2024. Riot Platforms chose instead to overhaul its board and increase its stake in Bitfarms to nearly 19%, with plans for future takeover attempts. Meanwhile, Stronghold had announced in May that it was exploring strategic alternatives, including a potential sale.

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Institutional Investments in Bitcoin ETFs

Bitcoin’s reputation as an investment asset has evolved significantly, moving from a symbol of extreme volatility to a more stable investment option over the past decade. Notably, Goldman Sachs Group Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS) made substantial investments in spot bitcoin exchange-traded funds (ETFs) during the second quarter of 2024, according to recent regulatory filings.

Goldman Sachs reported acquiring approximately $418 million in various bitcoin ETFs, as detailed in its quarterly 13-F filing with the Securities and Exchange Commission (SEC). This includes a significant $238 million stake in the iShares Bitcoin Trust (IBLC), representing nearly 7 million shares as of June 30. Goldman also invested in the Fidelity Wise Origin Bitcoin ETF (FBTC), Invesco Galaxy Bitcoin ETF (BTCO), and smaller amounts in other newly launched Bitcoin ETFs.

Morgan Stanley disclosed a $188 million investment in BlackRock’s iShares Bitcoin ETF (IBIT), comprising 5.5 million shares as of June 30. The bank also held smaller stakes in the Ark 21Shares Bitcoin ETF (ARKB) and the Grayscale Bitcoin Trust (GBTC).

Insights from Institutional Filings

The 13-F filings offer insights into institutional investor positions at the end of each quarter, though they may not represent current holdings. Despite the increasing presence of institutional investors, ETF issuers and analysts indicate that individual investors still dominate the market.

Several hedge funds have adjusted their positions in bitcoin ETFs. Hunting Hill Global Capital reduced its stakes in Grayscale and Fidelity ETFs but increased its investment in the Bitwise Bitcoin ETF (BITW) and established a new position in BlackRock’s ETF. Millennium Management LLC also modified its holdings, reducing its positions in three of the five bitcoin ETFs it initially held while boosting its investment in the Bitwise product. Overall, Millennium’s investment in bitcoin ETFs decreased from $2 billion at the end of the first quarter to approximately $1.15 billion by the end of the second quarter.

Why the Growing Interest?

Since the launch of the first Bitcoin ETFs on January 11, the asset has surged about 35%, even reaching a level of $70,000. The introduction of these ETFs marks a significant milestone in Bitcoin’s evolution, offering both retail and institutional investors a regulated and accessible investment vehicle. This development enhances liquidity and contributes to price stability.

Market observers suggest that an increasing number of long-term investors are entering the market for diversification and asset allocation purposes, recognizing Bitcoin’s potential as a store of value and hedge against traditional financial assets.

Evaluating Safety and Volatility

Despite recent gains and growing mainstream acceptance, Bitcoin remains a complex asset with the potential for significant price swings. Its historical volatility is an important consideration for investors.

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Crypto Stablecoins Enter the Treasury Market

In an unexpected development, traditional US Treasury securities are now connected with the volatile cryptocurrency market. Issuers of crypto stablecoins, which are designed to maintain a one-to-one value with the US dollar, have emerged as significant participants in the Treasury market. These issuers are seeking the most secure and liquid assets to back their tokens.

Market Skepticism and Institutional Comparison

For proponents of cryptocurrency, this intersection with Treasury securities represents a milestone, reflecting the industry’s efforts to build stronger ties with the US government. Tether Holdings Ltd. (USDT), the issuer of the largest stablecoin, has asserted that it can support US and global financial stability amid rising US debt and decreasing foreign investments. However, the reality often falls short of these claims. Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics and former Federal Reserve staffer, believes that while Tether’s $81 billion in Treasury bills is noteworthy, it remains minor compared to the overall Treasury market, which is measured in trillions of dollars.

Stablecoins account for only about 1% of Treasury bill purchases. The $6.19 trillion money-market mutual fund industry remains the largest buyer of these bills, holding approximately $2.4 trillion in government debt. This demand is expected to grow as new regulations impose liquidity fees during financial stress. Similarly, corporate giants like Berkshire Hathaway Inc. (NYSE:BRK.A) overshadow stablecoin issuers, with Berkshire increasing its T-bill holdings to $234 billion in the second quarter, nearly three times Tether’s holdings. The total market capitalization for stablecoins is around $167 billion, with Tether representing $117 billion, according to CoinGecko.

Future Prospects and Legislative Implications

The future impact of stablecoin issuers on the Treasury market will depend on the growth of the cryptocurrency sector and potential Congressional legislation. Stablecoins are widely used in crypto markets as a proxy for the dollar, offering stability during market fluctuations or enabling investments in decentralized finance platforms. Their popularity is growing in emerging economies, with notable premiums paid for stablecoins in countries like Argentina. By 2027, businesses and consumers in these regions are expected to pay $25.4 billion in premiums for stablecoins, according to the Centre for Economics and Business Research (CEBR).

JPMorgan Chase & Co. (NYSE:JPM) strategists suggest that demand for government debt from stablecoins might increase if Congress enacts legislation requiring tokens to be backed by high-quality liquid assets (HQLA), including Treasury bills. Despite these prospects, experts in the fixed-income market remain doubtful about significant impacts. Lawrence Gillum, chief fixed-income strategist at LPL Financial, argues that stablecoin purchases are unlikely to substantially influence broader market trends or yield movements due to supply concerns and other market forces. However, any additional demand from the crypto sector could benefit Treasury issuance.

Tether’s CEO, Paolo Ardoino, is optimistic about the company’s future role in the Treasury market. He expects that Tether will become the largest holder of three-month T-bills in the coming years and might eventually hold a substantial portion of all T-bills. Tether aims to be fully backed by US T-bills, with only excess reserves invested elsewhere.

The evolution of Tether’s involvement in the Treasury market represents a significant shift from its early days, marked by skepticism over its reserve backing. After settling allegations of reserve misrepresentation with the New York Attorney General and the Commodity Futures Trading Commission (CFTC), Tether has developed a strong relationship with Cantor Fitzgerald LP, a major player in the Treasury market. Cantor Fitzgerald’s thorough due diligence has helped reduce skepticism surrounding Tether.

Despite these advancements, Tether’s impact on the Treasury market remains modest in the context of US debt, which totals $27 trillion, with Treasury bills comprising about one-fifth. The Congressional Budget Office (CBO) projects that US debt will reach $48 trillion by 2034. According to Mark Sobel, former Treasury official and US chairman at the Official Monetary and Financial Institutions Forum, Tether’s holdings are significant but not a major factor in deficit funding. He notes that there are likely much larger issues for the Treasury to address.

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