BlackRock is the world’s largest asset manager, so when its CEO, Larry Fink, remarked recently that he was seeing “very little in terms of investor demand” with regard to crypto and Bitcoin (BTC) based on “my last two weeks of business travel,” it set off some alarm bells.
A lively Twitter discussion followed one commentator’s remarks of how BlackRock was simply protecting its legacy bond business, given that “Goldman Sachs, BNY Mellon, State Street, Morgan Stanley, all entered the space in response to demand.” Furthermore, BlackRock is the second-largest owner of MicroStrategy (MSTR) stock, regarded by many as a pure Bitcoin play.
As has been recounted, Bitcoin reached its all-time high of $64,000 on April 14 but soon thereafter plunged, and it has now been trading at roughly half its April high for weeks, as have many other cryptocurrencies. Some users are understandably nervous.
Moving beyond market cycles
Perhaps it is better to adopt a longer-term view regarding recent events. “Two months is a very short time period in crypto,” Bitwise chief investment officer Matt Hougan explained to Cointelegraph, adding, “I’m not sure what to make of Fink’s comments, except that they don’t align with our day-to-day experience.”
“Institutional investors take 12–36 months to do due diligence,” Jeff Dorman, chief investment officer of digital asset management firm Arca, told Cointelegraph, adding further, “They aren’t timing market cycles. They are trying to get comfortable with the asset class to make a 10-year-plus commitment.”
“It’s important to remember that the market is up more than 200% in the past 12 months, making it the best-performing asset class in the world over the last year,” added Hougan, who claims to see continuous inflows into Bitwise.
Moreover, crypto and blockchain technology is a global phenomenon, and one has to be careful about drawing worldwide conclusions from American or European events. BlackRock, for the record, is based in New York City. “It doesn’t feel like a crypto winter here in Asia,” Justin d’Anethan, head of exchange sales at Singapore-based EQONEX, told Cointelegraph, adding:
“While prices falling have definitely dampened some of the enthusiasm, we’re still seeing a clear interest for crypto and crypto- and blockchain-based ventures. If anything, the stagnation in the lower 30,000’s was/is seen by many as an opportunity to get in.”
Elsewhere, Emin Gün Sirer, Cornell University professor and creator of the Avalanche blockchain protocol, told Cointelegraph China recently that hedge funds aren’t the only institutional players probing the crypto waters these days: “I have been getting contacts from retirement funds, […] far more slower-moving but with maybe 10 times more dollars under their control, and they are slowly coming into crypto.”
Also, Fidelity Digital, an institutional pioneer in the crypto space, has been aggressively expanding lately — boosting staff by 70% due to “strong crypto demand,” including 100 new workers in Dublin, Boston and Utah, as Fidelity Digital president Tom Jessop told Bloomberg. The firm sees more demand from retirement advisors as well as companies, and it is broadening its product offerings accordingly. “We’ve seen more interest in Ether, so we want to be ahead of that demand,” said Jessop. Megan Griffin, a Fidelity Digital spokesperson, told Cointelegraph:
“We haven’t seen a material change in [crypto] demand during the [post-April 14] drawdown, given institutions tend to hold a long-term view and are experienced in managing through cycles.”
Dorman was even more emphatic. “The interest in digital assets from new investors has accelerated — not slowed down,” he said. “Any slow down with allocations is more a function of summer than it is price.”
A boom-and-bust dynamic?
Still, there are valid reasons why the demand for crypto could be seen as faltering. “There is little doubt that the boom and bust dynamics of the past weeks represent a setback to the institutional adoption of crypto markets and in particular of Bitcoin and Ethereum,” a JPMorgan strategist said in a report in June.
“Of course, the crypto markets have indeed been going sideways,” Lex Sokolin, head economist at ConsenSys, told Cointelegraph, adding, “The drivers are some combination of pushback to mining, global macro risk-off trends and momentum slowing on sentiment/meme trading.” But the underlying fundamentals are solid, Sokolin continued:
“We see immense demand from institutional investors for both crypto assets, as well as the equity of crypto companies. We can point to the $18-billion valuation of FTX and $9-billion valuation of Bullish as recent evidence, both funded by some of the world’s largest hedge funds.”
The events that have unfolded since the start of the summer have caused some investors to slow down and conduct a bit more research, acknowledged Hougan. China’s banning Bitcoin mining at around the same time that United States authorities seemed to be ramping up efforts to regulate crypto forced investors “to pause and reflect. The good news is that both of these developments are long-term positives for the market even if they introduce short-term volatility.”
Still, the roller coaster ride of recent months is a reminder that BTC and crypto, generally, have still not solved their volatility problem. “Volatility scares everyone,” observed Dorman, adding, “Volatility is more accepted when you trust the value of the underlying asset — that’s the biggest hurdle with institutional investors in terms of their education.”
The only notable shift Dorman has seen in recent months “is that new investors are way more interested in DeFi, gaming and other cash-flow producing assets than they are in Bitcoin or Ethereum — or ETH competitors.”
“Decentralized finance continues to mature and process transactions and loans,” said Sokolin, adding: “NFT-based platforms are seeing major studios and creators shift to new tokenized business models. Computational chains like Ethereum are clearly having a moment. It is also possible that we will see more DeFi-type activity anchored to Bitcoin, Solana or other chains, and that will grow the entire pie.”
Playing the “long game”
Crypto continues to face challenges, though. “We expect to see significant new activity on the U.S. regulatory front, for instance, and if regulators over-reach, that could have a material negative impact on crypto,” Hougan explained, while going on to add, “Of course, the flip side is true, too: If regulators put forth balanced regulation, that would lay the groundwork for the next great crypto bull market.”
D’Anethan believes that many of crypto’s technological challenges, such as scalability and transaction speed, have “already been looked at and somewhat resolved,” but there is still a need to find the right balance between “network effect” and efficiency, noting:
“BTC is a well-accepted crypto but, technologically speaking, is not the best user experience. A new cryptocurrency might be great, but if nobody uses it, it doesn’t do much good. This is a self-balancing act that still needs to play out.”
Overall, long-term trends remain positive, suggested Dorman, “We are in a multi-decade secular uptrend. […] Every single near-term challenge is a long-term positive — regulation, China dispersion, etc.,” while Sokolin, for his part, called attention to a “deep investment in the digital asset long game by sophisticated participants that is happening now.”
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‘Overlooked’ Part of Senate Infrastructure Bill Renews Worries From Crypto Lobby
The $1 trillion infrastructure bill, which passed in the Senate in early August and is expected to be approved by the House, is the gift that keeps on giving.
At first, it was about roads, bridges, and clean water. Then a pay-for provision promised to give American crypto users new tax reporting requirements. And now there’s a new twist.
A report published today by the Proof of Stake Alliance (POSA), an advocacy group that counts Coinbase Custody and as members, details an “overlooked” amendment to the tax code within the 2,700-page bill that will make it a felony to incorrectly report receiving cryptocurrencies, , or other digital assets.
Writing in his role as an advisor to the POSA, law professor Abraham Sutherland details how the infrastructure bill amends Section 6050I of the tax code. The amended section 6045 that caused so much consternation when it made it through the Senate changed the definition of “broker” to cover those handling cryptocurrencies.
Industry lobbyists and cryptocurrency advocates such as the think tank Coin Center argued that the bill as written would force miners and validators on other networks to file 1099 forms for the people whose transactions they were processing—even though they lacked the personal information needed to do so.
Section 6050I, on the other hand, deals with the tax reporting requirements of those who ultimately receive the cryptocurrencies. While Americans must already report their crypto gains to the IRS just as they would with other investments, Sutherland says the amended provision goes much further: They must tell the government who sent it, including reporting social security numbers, when the value of the digital assets is more than $10,000. Not doing so within 15 days constitutes a felony.
This raises at least two issues. First, as Sutherland notes, it’s just as unwieldy as the section 6045 amendment: “This provision demands the impossible because the digital assets might not be ‘received’ from a person whose personally identifiable information can be verified and reported—including cases where the digital assets are not ‘received’ from a person or entity with a tax ID number, period.”
Second, as Sutherland alludes to and as Coin Center Research Director Peter Van Valkenburgh hammered home in a blog post, it might just be unconstitutional. The tax code currently mandates that people report such information to the IRS when they receive $10,000 in cash. That passes Constitutional muster because the bank acts as a third party; otherwise, authorities would need a warrant under the Fourth Amendment. But in cryptocurrency, a peer-to-peer transaction doesn’t have a third party.
Writes Van Valkenburgh: “One person to a two person transaction is obligated to collect a load of sensitive information from her counterparty and hand that to government officials without any warrant or reasonable suspicion of wrongdoing.”
Though he writes that Coin Center usually doesn’t “object to equal treatment of cash and cryptocurrencies,” in this case the “provision is a draconian surveillance rule that should have been ruled unconstitutional long ago. Extending it to cryptocurrency transactions would further erode the privacy of law-abiding Americans.”
Sutherland also calls into question the process by which the amended IRS code will become law—via a bill on completely unrelated topics. “A statute creating felony crimes for users of digital assets should be debated openly, not quietly inserted into a spending bill,” he wrote.
Avalanche (AVAX) bumps to near $70 after reveal of $230 million fundraise
High-speed blockchain Avalanche jumped to highs of $68.30 today after several influential crypto investors revealed the close of a private funding round involving $230 million worth of AVAX tokens in June, CryptoSlate learned in a release.
The Avalanche Foundation, a non-profit that oversees the development of the Avalanche blockchain, disclosed participants in the multimillion-dollar funding round were led by PolyChain Capital and Three Arrows Capital, and included R/Crypto Fund, Dragonfly, CMS Holdings, Collab+Currency, and Lvna Capital.
What a day! Just one of the many major initiatives the @AvaLabsOfficial team has been working on.
— Jay Kurahashi-Sofue 🔺 (@jayks17) September 16, 2021
What happens to Avalanche now?
Proceeds from the private sale will be used to support the burgeoning Avalanche ecosystem—one that has been positioned as a top contender against Ethereum for its high speed and low fees.
Part of the funds will be funneled to support DeFi (decentralized finance) projects on Avalanche as well as enterprise applications through grants, token purchases, and other forms of investments.
Avalanche’s smart contract is able to execute Ethereum Virtual Machine (EVM) contracts, making it possible for developers to ‘reuse’ their codebase if they have a working/testnet product on the Ethereum blockchain.
Converting assets on-chain using a ‘bridge’—a way for two separate blockchain to communicate with and transfer value between each other—are also simple as applications querying the Ethereum network can be adapted to support Avalanche by changing API endpoints and adding support for a new network.
Meanwhile, the news caused a surge in AVAX prices last night. The token jumped 30% to over $68.30 to set a new all-time high, reaching a $14 billion marketcap and becoming the 12th-most-valuable cryptocurrency by that metric.
At press time, AVAX continues to trade above its 34-period exponential moving average, a metric used by traders that determines asset trends using historic prices. It has been been in a gradual uptrend since breaking the $15 mark in late-July, and has returned several multiples to investors in the past three months alone.
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Can NFTs impact the economic livelihood of artists in developing nations?
- Aversano deployed the first NFT portrait photography.
- The total sales volume of NFTs in the art segment rose from $64 million to $774 million.
- NFTs ensure an artist is paid royalty whenever their art is used.
Aversano, an artist known for deploying the first-ever NFT portrait photography, says he sold more than 100 NFT portraits between February and June. He said the sales earned approximately $130,000 within five months. The Twin collection in which he sold the 100 portraits are photographs of twins, which he says are in memory of his fraternal twin.
What are NFTs?
NFTs are non-fungible tokens which are real-life assets that are sold on digital platforms. The viability of NFTs depends on the uniqueness and the utility of possession. This means that tokens can only be relevant to an owner if he can prove ownership of the token. The tokens can range from unique pieces of art from artists to current assets like cars. The digital platform gives an easy and availed proof of ownership.
Non-fugitive assets are made more desirable by the fact that they are unique and one of a kind. This makes them very valuable.
According to Statista, the total sales volume of NFTs in the art segment rose from $64 million to $774 million within a record period of 30-days (August 15 – September 15, 2021). The chart below shows the fluctuation of NFT sales per 30-days period between April and August.
How can NFTs make artists’ lives better?
As the digital world takes significant steps ahead, more investors try to get a niche to explore the same fruits. When Jack Dorsey sold his first tweet at $2.9m, it started a buzz on and around NFTs. Not only for the amount of money fetched but the ‘absurdity’ of buying a tweet when there are millions of them already. However, there is much more to it. It brought about the concept of owning a one-of-a-kind piece of art which for sure is an advantage to artists.
First, NFTs guarantee immutability to the artist. There is uniqueness where the artist has complete copyrights on his art. This is enabled by the ID or metadata issued to an artist to prove possession of the art. It is offered to give essential data about the piece of art.
Second, there are no intermediaries during the trading of art on cryptocurrency platforms. Once there is an interested party, they are connected to the individual artist who lays out the asset’s guidelines to change possession. This is advantageous to the artist since transactions are done on his terms. It also keeps in place his profile and reputation as an artist. The artist also cuts the marketing cost and the issue of art brokers.
Next, there is exposure for the artist. When trading NFTs, artists are at ease to do collaborations with other artists. This is a guarantee as the platform is a haven where artists can interact and flourish while teaming up with even more significant expertise in different fields. Apart from collaborations, there is a world market availed. Geographical borders or any particular divisions do not limit the crypto platforms. Once an artist avails art on a digital platform, the piece is available for everybody.
One other factor pulling artists to NFTs is smart contracts. This is a feature that keeps a contract in code form. It works best for decentralized platforms. Smart contracts are programmed to suit an investor’s interest in trade.
For example, smart contracts can be used by artists dealing with NFTs to store data or be used to get royalties each time the piece of art changes possession. This means that the artist keeps reaping from the art long after the sale. A smart contract can be programmed to work without involving a party to set it up time and again.
On the other hand, since the buzz around NFTs began, more people are trying to get into the trade in an attempt of minting. This is leading to flooding in the market and the uniqueness of NFTs diluting. However, this is not a guarantee for the near future failure of NFTs. Artists can reap much from the NFTs.
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