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Bitcoin (BTC) has been on an impressive price run since the announcement of the United States Securities and Exchange Commission’s approval of ProShares’ Bitcoin futures exchange-traded fund (ETF) early in October, hitting a new all-time high of over $69,000 on Nov. 10, as per data from TradingView.
However, the financial watchdogs soured the mood by rejecting VanEck’s proposal for a spot ETF on Nov. 12, which acted as a trigger for the price of the flagship cryptocurrency to drop to a 30-day low of $55,705 on Nov. 19. The token is trading in the $56,000 range at the time of writing.
An ETF is a security class that tracks an asset or basket of assets, in this case Bitcoin, and can be traded on a stock exchange like any other stock. Proshares’ BTC ETF was the first ETF to gain approval from the SEC after over 20 applications had been made to the financial regulators in the past.
Jan van Eck, CEO of VanEck, wasn’t happy about the rejection of his company’s ETF.
We are disappointed in today’s update from the SEC declining approval of our physical bitcoin ETF. We believe that investors should be able to gain #BTC exposure through a regulated fund and that a non-futures ETF structure is the superior approach. @tyler @gaborgurbacs
— Jan van Eck (@JanvanEck3) November 12, 2021
The difference between the approved Bitcoin ETFs trading currently across various stock exchanges in the U.S. such as the Nasdaq or CBOE and VanEck’s rejected Bitcoin ETF is that VanEck’s ETF proposal was for a spot ETF, and the approved ETFs are all futures-based ETFs.
Van Eck said that a spot ETF is the better choice, tweeting, “We believe that investors should be able to gain #BTC exposure through a regulated fund and that a non-futures ETF structure is the superior approach.”
SEC Chair Gary Gensler has previously voiced his support for futures-based BTC ETFs instead of price-based. In the official decision to reject VanEck’s ETF application, the SEC said that the product failed to meet the requirement “that the rules of a national securities exchange be ‘designed to prevent fraudulent and manipulative acts and practices’ and ‘to protect investors and the public interest.’”
However, it could be that financial regulators in the U.S., in rejecting VanEck’s spot ETF, have unleashed a risker product on the same investors it aims to protect, as it allows institutional Wall Street money to leverage Bitcoin’s price movements.
A futures contract gives the holder or buyer of the contract the obligation to purchase the underlying asset and the writer or seller of the contract the obligation to sell and deliver the asset at a specified price on a specified future date unless the holder closes their position prior to the expiration date.
Combined with options, these financial instruments are often used to hedge other positions in the investor’s portfolio or make profits from pure speculation without needing to buy the underlying asset. These markets are usually dominated by institutional investors that have deep pockets to buffer any losses in their portfolio.
Although futures could be used solely to minimize risk in an investor’s profile, where they get riskier is the use of leverage in futures markets. Leverage is the ability to use borrowed funds and/or debt as trading capital in the market to amplify returns from a position. Essentially, it is used by investors to increase their buying power multifold in the markets.
While leverage also exists in the spot markets, its impact is significantly smaller. However, with futures contracts, the leverage could be up to 95%, which entails that an investor can easily purchase an options contract with 5% of the required capital and borrow the rest. This means any small fluctuations in the price of the underlying asset will have a large impact on the contract, leading to a margin call for investors due to forced liquidations of futures contracts.
A margin call is a scenario wherein the value of the investor’s margins has fallen below the exchange or broker’s required amount. This calls for investors to deposit an amount known as maintenance margin to the account to replenish back to the minimum allowed value. This could also lead to investors having to sell other assets in their portfolios to make up for this amount.
It is important to note that these risks inherent for futures contracts have nothing to do with the nature of the underlying products, but from the methodology by which futures contracts are traded across financial markets. Du Jun, co-founder of cryptocurrency exchange Huobi Global, spoke to Cointelegraph about the SEC’s decision:
“Given the current situation, futures ETFs may be the best choice accepted by the SEC. It’s true that futures ETFs are often complex with a higher risk profile, but the futures ETFs have some characteristics that satisfy the SEC’s demand.”
Jun believes that, to begin with, regulators still haven’t figured out the process to set BTC’s spot price, thus leading them to think that the price is vulnerable to manipulation; so, futures ETFs unlinked to BTC directly would offer investors better protection.
Furthermore, futures ETFs give investors the opportunity to go both long and short on BTC, thus hedging their BTC assets instead of holding units with physically backed BTC.
Antoni Trenchev, co-founder of crypto trading platform Nexo, told Cointelegraph, “The SEC doesn’t seem ready to allow spot ETFs just yet. I have a hunch this will happen in the near-to-mid future, as soon as U.S. regulators are confident in their policies and treatment of Bitcoin and other digital assets.” He said that ultimately, both of these products are just financial tools, and the SEC will want to have a variety of options available.
He noted the SEC’s hesitance to take risks, stating, “They’re simply unwilling to take any risks, which is in itself commendable considering the high pressure from eager investors to have spot ETFs in the U.S.”
However, not all market participants have a positive outlook about the SEC’s approach. Marie Tatibouet, chief marketing officer of crypto exchange Gate.io, told Cointelegraph, “It took the U.S. SEC around four years to figure out how a futures BTC ETF works. It will probably take them two to three years more to figure out spot ETFs.”
Tatibouet said that since BTC futures contracts aren’t linked to the price of Bitcoin directly but to the price of Bitcoin futures, the prices of which are “way easier” to manipulate than spot prices, this could be one of the reasons that the SEC approved futures ETFs.
While the launch of Bitcoin futures ETFs in the U.S. was celebrated by the community as a watershed moment for the cryptocurrency asset class, it was not the first country to allow crypto-related ETFs. The U.S.’ friendly neighbor, Canada, has had Bitcoin ETFs trading on various exchanges for most of this year.
Canada saw the launch of the first Bitcoin ETF in North America, the Purpose Bitcoin ETF, in February this year. This is a physically backed spot Bitcoin ETF that has been successful ever since its launch. Evolve Investments also launched the Evolve Bitcoin ETF soon after, which is also a spot ETF. The Purpose Bitcoin ETFs and the Evolve Bitcoin ETF currently have $1.4 billion and $203 million in assets under management, respectively. The companies behind these ETFs have also gone on to launch Ether (ETH)-based ETFs following the success of their Bitcoin ETFs.
Nexos’ Trenchev said, “Canada could be thought of as the El Salvador of Spot BTC ETFs. They’ve been available there for some time now, and things seem to be working out. It’s always an advantage to have examples to look to — regardless of how successful or unsuccessful they are — and I’m certain this will be the case when it comes to spot ETFs in the U.S.”
Jun noted the differences in the legal landscape in the U.S. and Canada, stating, “Canada’s regulatory environment is more flexible, and Canada is more focused on innovation. It often dares to take the lead in financial innovation, like the first modern ETFs in 1990 and the first launch of cannabis ETFs in 2017. But the U.S. market regulatory environment is much stricter.”
Offering a new perspective on the matter, legendary trader Peter Brandt took to Twitter to mention how BTC maximalists should oppose ETFs and spot ETFs completely.
IMO, #Bitcoin maximalists should oppose spot $BTC ETFs in U.S. Bitcoin’s store of value story depends on its scarcity and even some difficulty to purchase. Let’s not encourage greedy grub-hungry Wall Street to convert BTC into a vending machine asset.
Say NO to ETFs
— Peter Brandt (@PeterLBrandt) November 13, 2021
It is arguable whether ETFs will support the growth of BTC as an asset in the long term in the way originally intended, and it is undeniable that the developments of crypto ETFs have a large impact on market sentiments and thus, eventually, the price of Bitcoin, which is central to the whole discussion at hand.
Cactus Custody, a qualified institutional custodian solution powered by Matrixport, today announced that it is the first MetaMask Institutional (MMI) integrated custodian able to support MMI’s multi-chain capabilities and all EVM compatible chains.
This feature called “DeFi Connector” offered by Cactus Custody enables institutional clients seamless and secure connection with decentralized finance (DeFi) protocols via MMI.
The successful upgrade, enables multi-chain connectivity access across all Ethereum Virtual Machine (EVM) compatible chains, sidechains, and layer-2s, including but not limited to Ethereum, Binance Smart Chain, Polygon, Smart Bitcoin Cash, Avalanche, Fantom, Arbitrum, HECO, Harmony One and Celo, etc.
“Our offering concurrently delivers the highest level of security and usability to institutions seeking to tap into the vast opportunities within DeFi. We are fully committed to enabling multi-chain capabilities that provide even broader access to DeFi, whilst adhering to world-class standards of security and compliance.”
– Cynthia Wu, Head of Sales and Business Development, Matrixport
“EVM chain support is one of the most important institutional needs. With our latest custodial account multichain feature, Cactus Custody not only supports multiple EVM chains but also allows institutions to freely bridge digital assets across these networks. This is a profound DeFi offering for institutions.”
– Johann Bornman, Product Lead for MMI
Apple’s stock price jumped in after hours trading after CEO Tim Cook said during the company’s Q1 2022 earnings call that he sees considerable potential in the Metaverse space.
When asked on Jan. 27 during the call about Apple’s opportunities within the Metaverse, Cook responded “we see a lot of potential in this space and are investing accordingly.”
“We’re always exploring new and emerging technologies and I’ve spoken at length about how it’s very interesting to us right now.”
The Metaverse is an interoperable virtual universe created in part by users, offering socialization, gaming and even live concerts. Although it can be accessed with a browser, the experience is better with virtual reality (VR) or augmented reality (AR).
APPL had dropped about 3% to $159.22 during regular trading hours, but has since jumped up 8% to $167.23 in after hours trading. The Metaverse was just one of the topics discussed on the call.
Appleinsider reported that in the Jan. 27 call, Cook pointed out that Apple (APPL) already has a bevy of 14,000 apps on its App Store that have been designed using the AR developer platform ARKit. Apps designed using ARKit could help users gain access to the Metaverse.
Whereas Meta has leaned toward using the Oculus headset to immerse users into the Metaverse, Apple is placing its bets so far on AR technology. An Apple headset was scheduled for release in 2022, but Bloomberg reported on Jan. 14 that it may be delayed due to hardware and software challenges.
Despite Cook’s embrace of the Metaverse, the headset in development is believed to be focused on gaming, communication, and content consumption. So far, the largest company in the world by market cap is lagging behind other tech leaders like Meta and Microsoft, both of which are moving forward with public plans to develop in the Metaverse.
Microsoft recently purchased Activision Blizzard for $69B with the intention of expanding Metaverse gaming.
Following one of the most tumultuous 48 hours in recent crypto history, DeFi’s most freewheeling act is showing signs that it may be coming to an end.
On Thursday morning, popular on-chain analyst zachxbt revealed in a Twitter thread that 0xSifu, the pseudonymous treasury manager for decentralized finance (DeFi) project Wonderland, is in fact Michael Patryn – the co-founder of a notorious Canadian crypto exchange that defrauded investors of upward of $190 million.
The revelation has rocked “Frog Nation,” a loose conglomerate of projects that include Popsicle Finance, Wonderland and Abracadabra, which are all now helmed by prolific DeFi developer Daniele Sestagalli.
Frog Nation-related assets, including ICE, TIME and SPELL are down on the day in excess of 30%, and observers are now worried that Abracadabra’s MIM – one of the largest algorithmic stablecoins with a circulating supply in excess of $4.6 billion, according to CoinGecko – may lose its peg.
Before 0xSifu news
$1.4B 3Crv, $1.1B $MIM
— FreddieRaynolds (@FreddieRaynolds) January 27, 2022
In an effort to understand how Patryn came to be so deeply embedded in the organization, CoinDesk reached out to Sestagalli, who expressed doubts about the manner in which he ultimately revealed his colleague’s past to the community – but not about working with him in the first place.
“I have been thinking today, could I have prevented more damage today by saying, ‘Yes, it’s him?’ I don’t know,” he said.
Sestagalli told CoinDesk that he initially began talking to Patryn in a trading group with other prominent crypto personalities. Sestagalli had previously taken note of how Patryn added valuable input in a variety of other chat channels, particularly related to yield farming mechanics.
When Sestagalli launched Wonderland, a fork of Olympus DAO, in September, he thought that Patryn would be a natural fit, particularly after Patryn made suggestions for Abracadabra features.
“When I decided I wanted to launch Wonderland, I said to him, ‘I know you know a lot about OHM,’ and he had a deep understanding of bonding. [I said,] ‘Do you want to help me use the Olympus DAO model to raise funds for a DAO?’”
While working together, Wonderland grew to be arguably the most successful Olympus fork, at one point even exceeding Olympus’ treasury. Sestagalli and Patryn became notorious for their aggressive use of treasury funds, investing in startups and deploying yield farming strategies, at times being accused of recklessness.
— Daniele never asks to DM (@danielesesta) December 4, 2021
“We had tons of meetings, passed through moments and difficult decisions – that’s how I met him. Not as a person, but as Sifu,” Sestagalli said.
The two first met in person after Sestagalli had to flee his country of residence last year after threats against his family following his home address being doxxed. Sestagalli invited Patryn to move with him as well as large swaths of the rest of the Frog Nation team.
Patryn eventually agreed, and as the two grew closer in person, Patryn revealed his past.
According to Sestagalli, his personal experience working with Patryn led him to believe that the convicted felon had turned a new leaf.
“In my personal opinion, I try to avoid judging people for what they have done in the past. I tried to stick to the experience I had with him, and we had many, many months of working together, talking every day, and building successful things together.”
Anon culture is popular in crypto, especially in DeFi circles where it is not uncommon for founders and prominent members to maintain some level of anonymity.
3/ One of the reasons why blockchain technology and DeFi is so powerful is that has no bias about your past. I have no bias about @0xSifu he has became a friend and part of my family and if my reputation of judgment will be hit by his dox, than be it. All frogs for me are equal.
— Daniele never asks to DM (@danielesesta) January 27, 2022
Nonetheless, Sestagalli was taken aback by the revelation, saying he “felt like I was living in a Netflix documentary.”
“When he told me, it was kind of wild. ‘It’s me, it’s this,’ I was like ‘holy f**k.’ Of all the people I could have encountered in my journey, I encountered him. What were the chances?”
Coincidentally, Patryn first met Cotten on a message board and developed that relationship both online and then eventually in person as the two men started up Quadriga.
He says he conducted personal due diligence on Patryn’s background, but ultimately decided to overlook his colleague’s history because Patryn “has not had any behavior internally in our experience that would raise any red flags.”
“I did my own research. I looked into it, I said, ‘OK, there is a young guy who did some credit card stuff – you understand? Some mistakes when he was young. And then there was the Quadriga situation, which is definitely unclear,” he said.
Patryn had been convicted of identity fraud and spent time in federal prison in the U.S. At that time, he went by the name of Omar Dhanani and became “Michael Patryn” after serving his time, something he had previously denied as recently as 2019.
Crypto exchange QuadrigaCX was founded by Gerald Cotten and Patryn in 2013, quickly becoming one of the largest crypto exchanges by trading volumes in Canada. Cotten died in December 2018 after a trip to India, after which over $190 million worth of cryptocurrency owed to 115,000 customers was deemed missing, as per reports.
Where the funds went remains a mystery, as Quadriga executives claimed that only Cotten had access to the private keys that held the millions of dollars worth of client funds.
Sestagalli admitted that the circumstances surrounding Cotten’s death did give him pause.
“To be honest, at the beginning when I did my research I had my doubts. You know? I was like, ‘Yo, I’m another co-founder, I don’t want to end up like the last one,’” Sestagalli said, laughing.
Ultimately, however, he opted to trust his gut.
“You can look at something from afar, and you can look someone in the eyes. I asked him, what was his version of the situation? And in my opinion, at that point in time, let’s be realistic – it was good enough. If it wasn’t, I would have put him out.”
Sestagalli claimed multiple times throughout the interview that the TIME treasury funds – currently worth in excess of $700 million, according to a dashboard shared with CoinDesk – previously managed by Patryn are safe.
Additionally, in a post in Discord on Thursday morning, Patryn himself wrote that there is “no risk to Wonderland assets if something happens to me.”
The funds are reportedly managed by a multi-signature scheme, a popular tool that requires multiple individual signatories to approve transactions. Multi-sigs are broadly considered to be a bare-minimum security tool, however, particularly when managing a fund of Wonderland’s size.
Moving forward, Sestagalli said that what happens next is in the hands of the rarely-invoked Wonderland DAO.
“Right now [Patryn] is not managing the treasury, and the community needs to vote on if he should stay. That will happen today,” he said.
A vote is now taking place to decide if Patryn should be permanently removed from his position as treasurer.
Vote to remove Sifu as treasury manager. https://t.co/fGTBqlAdii
— Daniele never asks to DM (@danielesesta) January 27, 2022
Sestagalli noted that he will be abstaining from the vote, only the seventh in the DAO’s history. “I already made my choice,” he said.
UPDATE (Jan. 27, 18:26 UTC): Adds information on Patryn’s identity-theft conviction.
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