Crypto Index Funds Gain Traction Amid Market Turmoil, Providing Stability for Digital Asset Investors

03.27.2023

Market Overview:

Turmoil in the markets

The crypto markets have been experiencing a downward trend following news that Binance is being sued by the CFTC for alleged efforts to sidestep US regulation. This has led to over $145M in liquidations over a 24 hour period (beginning 3/26).

In other news, MicroStrategy has purchased 6,455 BTC over the past several weeks for approximately $150M in cash. dYdX announced that its Cosmos-based private testnet will start on March 28 and last for 2-3 weeks, with the public testnet expected to launch by the end of July and the mainnet by the end of September 2023.

Despite the market turmoil, the crypto industry has seen an increase in ETP debuts, with six products launched this month – the most since September 2022. Digital asset investment products also saw inflows totalling US$160M, with BTC being the primary beneficiary, seeing inflows of US$128M.

The CFTC’s lawsuit against Binance and two of its executives, CEO Changpeng Zhao and Samuel Lim, has brought to light the classification of digital assets such as BTC, ETH, and LTC as commodities. Meanwhile, the European Parliament’s Data Act, passed March 14, will require smart contracts to contain a kill switch, sparking concerns in the blockchain community.

On the Cardano front, over 118 projects have been launched, with 1215 building and over 63M transactions processed. Nasdaq is also set to launch a crypto custody service for BTC and ETH in 2023 as part of its digital assets arm.

In other news, NFT trading in virtual worlds surged to $311M in Q1 2023, while virtual land trading hit an all-time high, driven by Yuga Labs’ Otherside and MG Land. Uniswap is set to launch its V3 iteration on Avalanche ahead of its imminent BSL expiration on April 1.

Lastly, Tether estimates it will make a $700M profit in the March quarter, taking its total excess reserves to over $1B. Leaders from Japan, the US, the UK, Canada, France, Germany and the EU are expected to outline a global cooperative strategy for digital assets in May.

NFT Market News:

Ticketmaster Integrates NFT-Gated Features

Ticketmaster has unveiled a new feature that allows artists to grant NFT holders exclusive access to events, providing another example of the evolving technology that powers digital collectibles. The “token-gated ticket sales” feature is compatible with Ethereum-minted tokens stored in digital wallets such as MetaMask or Coinbase, according to a statement by Ticketmaster. Heavy metal band Avenged Sevenfold was the first to use the tool to reward holders of its Deathbats Club NFT collection, launched in late 2021, by offering presale access, specific seats, or custom travel packages at the discretion of the artist.

The launch follows Ticketmaster’s introduction of an offering in August 2022 that aimed to allow sellers on its platform to issue NFTs before, during, or after events. Additionally, Ticketmaster had previously minted over 5 million NFTs on the Flow blockchain, which was created by Dapper Labs, the company behind CryptoKitties and NBA Top Shot. The company also distributed more than 70,000 commemorative ticket NFTs at Super Bowl LVI in 2022 using Flow. Ticketmaster’s Executive Vice President of Global Music, David Marcus, said the new feature “allows artists to get special access and rewards to specific fans they want to super serve,” and artists like Avenged Sevenfold are using NFTs and Web3 to build stronger connections with their fans.

UK Abandons Plans for a Government-Backed NFT

The United Kingdom’s Treasury has canceled plans to release a government-backed NFT, which was proposed by former Chancellor Rishi Sunak in April 2022. The NFT was intended to position the UK as a global crypto hub, with the Royal Mint tasked with releasing it by the summer of 2022. However, delays in the process have led to the Treasury canceling the plans “at this time”, although the proposal will remain under review.

The Royal Mint had previously explored the use of blockchain technology to track its gold supply in 2017, but this recent cancellation is thought to be due to volatility surrounding the crypto sector. Chair of the Treasury Select Committee, Harriet Baldwin, cited a lack of evidence to suggest that constituents should be investing in speculative tokens, unless they are prepared to “lose all their money”. Baldwin also confirmed that the government’s chief financial minister would be asked if issuing an NFT “remains the policy of his department”.

Despite the UK’s decision, other global leaders have recently expressed an interest in NFTs and Web3 technologies. Japan announced in October that it plans to invest in NFTs and metaverse services, while China launched an NFT and digital asset marketplace in January, despite strict regulations elsewhere.

Latest News:

WELCOME FRIENDS: Hundreds of institutions and prominent individuals have invested directly in crypto, adopted the value thesis, or started building technology to support digital assets since Wave started tracking this metric in late 2020. Now the rise of the Metaverse, Decentralized Finance (DeFi), Non-Fungible Tokens (NFTs), and Decentralized Autonomous Organizations (DAOs) is driving mainstream adoption of blockchain technologies everywhere we look. We’re continuing to keep track of it every week here:

• USDT has been added to the @wallet bot on Telegram, expanding the messaging app’s facility for buying and selling crypto.
• Nasdaq (NDAQ) is aiming to debut its crypto custody services by the end of the second quarter. The stock market exchange operator’s senior vice president and head of digital assets, Ira Auerbach, said the firm is working on getting the necessary infrastructure and regulatory approval in place. Nasdaq applied to the New York Department of Financial Services (NYDFS) for a limited-purpose trust company charter which would oversee its custody service.
• The Central Bank of UAE launched the CBUAE Central Bank Digital Currency (CBDC) Strategy, one of the nine initiatives of the CBUAE’s Financial Infrastructure Transformation (FIT) Programme. As part of the UAE’s digital transformation, CBDC will address the challenges of domestic and cross-border payments, enhance financial inclusion and the move towards a cashless society. The first phase of the strategy, which is expected to complete over the next 12 to 15 months, comprises three major pillars, the soft launch of mBridge to facilitate real-value cross-border CBDC transactions for international trade settlement; proof-of-concept work for bilateral CBDC bridges with India; and proof-of-concept work for domestic CBDC issuance covering wholesale and retail usage.
• Gucci said this week that it’s working with non-fungible-token issuer Yuga Labs, the company behind the Bored Ape Yacht Club NFT collection, to bring luxury digital fashion into the metaverse. According to a report from Business of Fashion, Gucci and Yuga Labs have signed a multiyear partnership to collaborate within Yuga Labs’ Otherside metaverse and its 10KTF collection, with a goal of exploring joint opportunities between Web3 fashion and entertainment.

REGULATORY ROUNDUP: We’re living through the era of regulatory recognition of digital assets. The legislation, litigation, and regulation happening today will dictate the entire future of our industry, and we have a historic chance to shape those changes by staying informed and exerting political influence.

• Coinbase disclosed the SEC alleged it may be operating in violation of securities laws. The regulator targeted Coinbase with a so-called Wells Notice that informs the business that the agency is planning a future action that could include an injunction or cease-and-desist without specifying exactly what activity it found in violation. Coinbase believes the action relates to aspects of its spot market trading services, staking services, Coinbase Prime, and Coinbase Wallet. The company has until March 29 to let the agency know whether it intends to rebut the SEC enforcement division’s findings that securities law have likely been violated. Coinbase seemingly intends to rebut the SEC’s claims, with its Chief Legal Officer stating, “we welcome a legal process to provide the clarity we have been advocating for and to demonstrate that the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets.”
• Do Kwon, the co-founder and CEO of Terraform Labs, the company behind the $50b Terra ecosystem that blew up last year, has been arrested in Montenegro. Kwon was charged with document forgery, and local media reported Kwon was in possession of falsified travel documents from Costa Rica and Belgium. Kwon was arrested alongside Terraform Labs CFO, Hon Chang Joon, as they tried to board a flight to Dubai. Kwon was charged by U.S. prosecutors later yesterday evening, and they are seeking his extradition to New York.
• The U.S. Commodity Futures Trading Commission (CFTC) sued crypto exchange Binance and founder Changpeng Zhao Monday on allegations the company knowingly offered unregistered crypto derivatives products in the U.S. against federal law. The lawsuit, filed in the U.S. District Court for the Northern District of Illinois on Monday, alleged that Binance operated a derivatives trading operation in the U.S., offering trades for cryptocurrencies including bitcoin (BTC), ether (ETH), litecoin (LTC), tether (USDT) and Binance USD (BUSD), which the suit referred to as commodities. The suit also alleged that the company, under Zhao’s leadership, directed its employees to spoof their locations through the use of virtual private networks. CZ posted a response to the CFTC complaint on Binance’s website.

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