SEC Provides Crypto Light in the Macro Gloom

Gm friends,

The markets are all about perspective, and while there’s doom and gloom in the immediate view, shifts are occurring at the regulatory level that are positive for the long-term, as we’ll see with a look at some critical developments at the SEC.

Now, here’s what’s in today’s issue:

• Chart of the day: Mag 7 index vs Bitcoin.
• David shares his thoughts on the SEC reviewing the Howey Test in crypto, FTX disqualifying up to $2.5 billion in user claims, Cathie Wood buying the dip, a Bitcoin Dev suggesting a quantum computing hard fork & WisdomTree expanding their tokenized funds platform.
• Today on chain.
• Altcoin Alpha.

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Chart of the Day

There are so many uncertainties in the markets right now, and high among them if you’re holding BTC is the extent to which it correlates with equities.

Is BTC still to be treated like an especially volatile risk-on tech stock, or can it decouple and fulfil its touted role as a safe haven asset when everything else is in a state of chaos?

For a while last week BTC looked relatively strong, but it’s now down about 30% from its ATH while the Mag 7 Index is currently also down almost 30% from its ATH, having dropped from around 340 to below 260, meaning if there was any decoupling for BTC, it was short-lived.

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News Now

SEC to Review Use of Howey Test in Crypto

During price downturns, it’s important to maintain a view of all the positive long-term changes happening around crypto, and the latest on that front comes from the SEC, where acting Chair Mark Uyeda last Saturday issued some significant new directions to staff.

Perhaps most important among them was an instruction to review the use of the Howey Test to assess whether or not crypto assets are securities.

The Howey Test goes back to the 1940s and has been a thorn in the side of the crypto industry as it was applied to categorize crypto tokens as securities, despite arguments that the Test–which originally related to the sale of land for citrus groves–simply isn’t compatible with blockchain technology here in the 2020s.

Additionally, this change at the SEC comes as the regulator has clarified that it does not view what it calls “covered” stablecoins–those that are pegged to a specified value and fully reserve-backed, such as USDC and USDT–as securities.

Staff have also been instructed to review other statements made in relation to crypto, including former advice to investors to be cautious around mutual funds exposed to Bitcoin futures, and guidance that played up Bitcoin and the crypto markets as uniquely risky, volatile, and exposed to regulatory and reputational risk.

Overall then, it looks like the SEC is continuing to fully reset its relationship with crypto under the Trump admin, with its formerly hostile attitude having exited the building along with former Chair Gary Gensler, so you can mark these developments down as long-time-frame bullish.

FTX Disqualifies up to $2.5 Billion in User Claims

Collapsed exchange FTX is set to begin repaying its main group of creditors from May 30th this year, and reportedly has $11.4 billion in place for redistribution, with payouts based on the value of assets at the time of bankruptcy (which in the case of BTC is a lot lower than it is now).

However, it appears that up to around $2.5 billion of these funds may end up going unclaimed as the exchange has disqualified around 392,000 customer claims due to non-compliance with KYC requirements, with these creditors not meeting a March 3rd deadline by which it was necessary to begin identity verification.

According to high profile FTX creditor/activist Sunil Kavuri, there are more expunged claims still to come if further KYC documents are not received by June 1st, which may then result in that $2.5 billion disqualification total, with around $655 million of that from claims below $50K, and $1.9 billion from claims over $50K.

Cathie Wood Buys the Coinbase Dip

If you’re hesitant to buy any crypto dips, that’s understandable, but Ark Invest founder and CEO Cathie Wood is not passing up on any opportunities, as last Friday the firm scooped up 83,157 Coinbase shares worth at the time around $13.4 million.

This came as the Coinbase price dipped by around 5%, and the shares were bought across three ETFs: the ARK Innovation ETF, the ARK Next Generation Internet ETF, and the ARK Fintech Innovation ETF, and this latest buy comes after Ark Invest bought around $11.5 million worth of Coinbase shares in March, in that case across the ARK Innovation ETF and the ARK Fintech Innovation ETF.

Additionally, Wood recently explained that she thinks the US is in a rolling recession, and that “the Trump team and Fed have many degrees of freedom to pivot toward pro-growth policies – tax cuts, massive deregulation, lower interest rates”, and she cites the midterm election campaign, which will start this Autumn, as a potential pivot point, especially considering the degree to which President Trump cares about his lasting legacy.

Investing is all about calculated risks so it will be interesting to see whether this particular analysis pays off from here, but it makes a lot of sense.

Bitcoin Dev Suggests Quantum Computing Hard Fork

When looking at potential long-term obstacles for Bitcoin, one conundrum comes from the possible rise of quantum computing, which might pose a serious security risk. Now for sure, if quantum computing expands then it’s not just Bitcoin at risk, as pretty much all online security will become vulnerable, but either way, it’s an issue to already start exploring solutions for.

And that’s exactly what Bitcoin developer Agustin Cruz has done in a drafted Bitcoin Improvement Proposal (BIP)  titled Quantum-Resistant Address Migration Protocol. According to the document’s abstract, the plan is for:

“A consensus change that enforces a mandatory migration period for funds held in legacy Bitcoin addresses (i.e. addresses secured by ECDSA as defined in current protocol rules) to quantum-resistant addresses. After a specified migration deadline, any transaction attempting to spend funds from a legacy address will be considered invalid”.

ECDSA is the currently-deployed cryptographic method, and the measures proposed would require a Bitcoin hard fork, so it’s fair to say there would be strong resistance to the idea, with any such branching off from the original unlikely to be regarded as legitimate. However, it’s good to see discussion around this issue as it may become a more pressing concern in future.

WisdomTree Expands Tokenized Funds Platform

Tokenized RWAs remain an area of great potential, and asset manager WisdomTree recently expanded its tokenized fund product WisdomTree Connect.

This is an institutional investment platform specialized in tokenized TradFi assets, and with the most recent additions it now incorporates thirteen different SEC-registered funds. These can provide exposure to assets including government securities and stock market indices, and can be transacted with through US dollars or the USDC stablecoin, while holdings can be self-custodied or kept in third party custody.

Additionally, WisdomTree Connect has broadened its range of supported blockchains, so while it originally launched only on Ethereum, it’s now also deployed on Layer-2s Arbitrum, Optimism and Base, and also on Layer-1 competitor Avalanche.

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Today On Chain

DeFi platform Maple Finance, which is branded as an institutional capital marketplace and specializes in lending and borrowing services for institutions and accredited investors, has shown incredibly solid growth and appears to be maintaining momentum.

A look at TVL on the protocol shows it climbing from just around $25 million one year ago to almost $475 million right now, with steep upwards movement over the past month.

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Altcoin Alpha

• DEX aggregator Matcha, originally launched as an EVM-compatible product, has expanded to Solana. The platform also offers a Security Audit feature intended to help users avoid token scams and rug pulls.
• Sei Network is set to launch its Giga upgrade soon, although an exact date has yet to be confirmed. On deployment, the upgrade should greatly increase network speed, with a claimed 250,000 TPS incoming.
• Finance-focused blockchain Neutron is scheduled to complete its Mercury upgrade on April 9th. This will see the chain migrate from Cosmos to become a fully independent Proof-of-Stake network.
• Slashing will go live on EigenLayer on April 17th. Already deployed on testnet, this is the final step in EigenLayer’s development into a “feature-complete iteration”. To read more about how slashing works, check EigenLayer’s posts on the subject.
• Crypto startup Codex has raised $16 million from investors including Dragonfly, Circle and Coinbase, to build an Optimism-based Layer-2 chain specifically for stablecoins and suitable for business use.

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Legal Disclaimer

Wealth Mastery (Lark Davis, and the Wealth Mastery writing team) are not providing you individually tailored investment advice. Nor is Wealth Mastery registered to provide investment advice, is not a financial adviser, and is not a broker-dealer. The material provided is for educational purposes only. Wealth Mastery is not responsible for any gains or losses that result from your cryptocurrency investments. Investing in cryptocurrency involves a high degree of risk and should be considered only by persons who can afford to sustain a loss of their entire investment. Investors should consult their financial adviser before investing in cryptocurrency.

You can find a full disclosure of all my crypto & venture investments here.