BitGo: Crypto Water Cooler — Nov 1

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GM. It’s Wednesday, November 1.

Newsmakers

Crypto by Geography: Top-Down and Bottom-Up Adoption

While parts of the industry may have gone into quasi-hibernation following the collapse of FTX and the rise of regulation, people around the globe are still interested in a new crypto world order. A distinct combination of top-down and bottom-up adoption is emerging.

According to Chainalysis’ “2023 Geography of Cryptocurrency Report,” lower middle-income countries are leading the charge in grassroots crypto adoption — an “extremely promising” trend since they hold 40 percent of the world’s population, and many have growing economies. In high-income countries, in contrast, it’s institutional adoption that’s growing. North America leads the world in crypto usage despite the uncertain U.S. regulatory environment and March banking crisis. However, although it still leads the world in DeFi transaction volume, there’s been a noticeable drop in activity.

Central, Northern, and Western Europe comprise the world’s second largest crypto economy with the UK as that region’s largest hub. While DeFi is the most popular category with retail buyers, institutional activity is growing. In Eastern Europe, large institutional volume is declining and DeFi activity is decreasing, but volume with smaller institutions is remaining steady — and so is retail usage. The Ukraine war has had a role in the declines.

Eastern Asia is witnessing usage drops as China bans activities, but Hong Kong may benefit from an indirect softening of China’s official positions in the special administrative region. In the Middle East and Africa, the UAE stands out with its innovative regulatory frameworks while Saudi Arabia leads the world in YoY crypto transaction growth. Sub-Saharan Africa, meanwhile, has the world’s highest Bitcoin transaction volume.

Crypto is still being used as a hedge in some South American countries, such as Argentina, which is going through peso devaluation, and Venezuela, which is experiencing hyperinflation. Stablecoins — the most widely used crypto asset — have experienced a decline around the globe.

Read more →Chainalysis

From ATMs to ETFs: The Changing Hopes for Mainstream Adoption

For years, enthusiasts have dreamed of mass adoption for Bitcoin. But, what that looks like is evolving over time.

At one time, Bitcoin ATMs (BTMs) were seen by some as something that would make BTC accessible to the masses. But new reporting shows that their appeal has waned; installations have dropped to their lowest level worldwide since 2021. The machines enable users to use cash or debit cards to purchase BTC and send it to a digital wallet. Some BTMs also allow users to sell Bitcoin for cash.

Research by the Federal Reserve Bank of Kansas City suggests BTM users are more likely to be lower- or middle-income consumers than crypto users as a whole and identifies four primary types of customers: cash users who may be unbanked; older, less tech-savvy users; privacy oriented people; and convenience oriented people. But high fees (the median fee is reportedly 16 percent) combined with crypto winter have likely dampened enthusiasm for BTMs in the general public.

Furthermore, some of the same aspects that made BTMs appealing to some customer segments have also brought scrutiny from regulators. The Kansas City Fed says that, while BTM operators are supposed to follow anti-money laundering and know your customer regulations, many do little or nothing at all to comply, making BTMs ideal for money launderers. The industry has also been charged with “predatory inclusion,” the marketing of high-risk, high-cost services as ways for the financially disadvantaged to gain entry to lucrative financial investments.

While BTMs do offer an alternative to exchanges that some people prefer, Bitcoin ETFs may have the potential to usher in mass adoption, albeit in a different way. And, if you want to purchase BTC directly today, you can also do that with PayPal, American Express, and Mastercard.

Read more →Seeking Alpha

Australia’s Treasury Unveils Exchange Licensing Proposal

Approximately one in every four Australians own crypto — the highest ownership rate among developed nations and the eighth highest in the world, but the country lacks digital asset regulation. Now the country’s Department of the Treasury has released a proposal for a broad regulatory framework that would place digital asset exchanges under existing financial services laws and require them to obtain a license to operate. The Treasury’s recently released paper, “Regulating Digital Asset Platforms,” describes the proposal as one that will protect consumers from harm while allowing for innovation.

The proposed regulations would apply to exchanges with more than AUD 1,500 ($946 USD) from any one client or more than AUD 5MM ($3.15MM USD) altogether. Besides aligning with Australian financial services laws where applicable, they would also follow international standards, using a “similar activity, similar risk, similar regulation” approach. Exchanges would have a year to obtain an operating license from the Australian Securities and Investments Commission. Custody rules and transaction standards have been inspired by ones used in the UK, Singapore, and Canada. The proposal also outlines requirements for trading and staking.

One big challenge: the rocky relationship between exchanges and banks. This past summer, the country’s largest bank blocked payments on select exchanges and placed twenty-four-hour holds on some transactions. Other big banks in the country followed suit; at least one commentator has noted that the Treasury’s new proposal doesn’t dig deeply enough into this “banking puzzle.” The proposal is open for comment through December 1 with implementation foreseen for 2024.

In related news, Assistant Governor of the Reserve Bank of Australia (RBA) Brad Jones discussed the opportunities and challenges associated from a “tokenized future.” Cost savings, Jones estimates, could reach 1B to 4B AUD for local financial markets and as much as 13B AUD for capital markets issuers. The country has also explored a central bank digital currency (CBDC). In mid-2024, the Treasury plans to jointly release a paper with the RBA to update citizens on its CBDC research.

Read more →Bloomberg ($)

News In Brief

Regulation and Security

• Hong Kong Monetary Authority Calls for More Study on CBDC — cryptonews
• UK Lawmakers Pass Bill to Seize Illicit Crypto — CoinDesk
• Bankman-Fried Takes the Stand in His Fraud Trial — New York Times ($)

Business of Crypto

• BitGo Granted German Crypto Custody License by BaFin — CoinDesk
• Brazil Tax Authorities: USDT Accounts for 80% of All Crypto Transactions — cryptonews
• Vitalik Buterin Makes Rare Investment in Nocturne Labs’ $6M Seed Round — The Defiant

DeFi and Web3

• Privacy Infrastructure Developer Nym Technologies Gets $300MM+ in Fund Commits — Coindesk
• Security Firm Blockaid Lands $33MM A Round — Decrypt
• Ripple Marks 3 Million NFTs Minted on XRP Ledger — cryptonews

Midweek Market Pulse

Total Market Cap: $1.27T — 7 day change as of Tuesday 10/31/23 Noon EST: +2.4%

Source: Messari

The global crypto market ended “Uptober” in strong fashion, increasing by 2.4% to $1.27T for the week.

Bitcoin (BTC, +0.9%) was relatively quiet but held onto recent gains: 22.2% over the past 30 days. The number one crypto has reached its highest level since May of 2022, primarily driven by increasing confidence of U.S. approval of a spot Bitcoin ETF. This sentiment was buoyed further by the announcement Monday that the SEC will not contest a court decision in favor of Grayscale’s right to convert its Grayscale Bitcoin Trust into a spot Bitcoin ETF. In other Bitcoin news, new data from Glassnode shows that a record 40MM Bitcoin wallet addresses, or over 80% of addresses, are now profitable. There are now 48.3 million non-zero Bitcoin addresses.

Meanwhile, the market appears to be in an ebullient mood heading into this week’s Federal Reserve meeting. Many observers are expecting the Fed to leave interest rates unchanged; CME’s FedWatch Tool rates that a 97.1% probability. Market participants will surely be reading the tea leaves of all commentary, trying to glean whether rate hikes will be on hold for the foreseeable future.

Ethereum (ETH, +0.2%) had a quiet week, and a relatively muted October, with a 3.1% gain for the month. On the opposite end of the Uptober spectrum, there were few bigger stars than Solana (SOL, +19.8%), which gained over 50% for the month on continued institutional investment and new partnerships. Solana is now up more than 260% year to date. In other layer-1 news, Cosmos (ATOM, +13.8%) and Avalanche (AVAX, +8.9%) are both higher on news that the two blockchains will be linking up through a bridge that will make networks built on Cosmos’ SDK interoperable with Avalanche’s C-Chain.

The Last Word

Non-Zero Bitcoin Address

Noun

: A Bitcoin address that holds at least $1 worth of BTC

/ Although hundreds of millions of Bitcoin addresses have been created over the past decade, only 10–15 percent are non-zero addresses.

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 1500 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.

©2023 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.