Hello, Investors,

I have to cancel my attendance at NFT.NYC next week. Apologies to all of those with whom we already agreed to meet there.

You voted for market highlights, let’s come back to that format. Educational stuff will continue on the blog and X.

The SEC vs. Ethereum and Spot ETF

The approval of ETH spot ETF is blurry. The short version - US regulators and policymakers are arguing whether Ether is a security or a commodity.

In the most recent development, 48 members of Congress signed a letter to Gary Gensler (SEC), expressing concerns about how listing ETH as a security could threaten the crypto industry.

Context - Commodity vs. security

• Commodities: These are physical goods like oil, gold, silver, wheat, and corn. They are often traded as futures and are overseen by the Commodities and Futures Trading Commission (CFTC).

• Securities: These are investment products like stocks, bonds, and mutual funds. Investors can buy and sell them at brokers registered with the SEC.

Today, most cryptocurrencies (including BTC) are classified as commodities and come under the Commodity Futures Trading Commission (CFTC) purview.

The SEC insists that many cryptocurrencies, including Solana (SOL), Cardano (ADA), Polygon (MATIC), and even Ethereum (ETH) are unregistered securities.

Back to ETH

So far Ether has been treated as a commodity, but there is one thing that is not fitting there since September 2022 - ETH became a yield-bearing commodity (i.e. security).

This relates to the long fights between the SEC and US Exchanges (Kraken, Coinbase, US Binance), over their offerings of staking-as-a-service and yield on crypto.

This fight led to the delisting of many tokens from the exchanges and restricting staking services.

If Ethereum is labeled a security, it could face stricter trading regulations, posing further challenges for investors and exchanges.

There are concerns it could even result in delisting ETH from some exchanges and affecting related projects.

My take

Congress members are upset, elections are coming and there is a little chance Gary Gensler can keep fighting Congress members, other regulators (CFTC), and probably even the president - Trump already expressed his opinion on Gary and that he won’t remain in his position if Trump is elected.

I don’t think we are about to see the worst scenario where ETH gets classified as a security, gets delisted from major exchanges, and projects panic switch to other blockchains.

We will see turmoil, and many news headlines, but the US can’t fight crypto forever, especially while their biggest companies are already adapting the technology.

I hope there will be a framework in the future where cryptocurrencies are treated as a separate asset class with their own rules and regulations, and we won’t see this endless commodity vs. security.

Investing-wise, I keep holding ETH, buying the dips with dividends from stocks, and overall happy about the market so far.

BlackRock sees, BlackRock does. And the Market Follows.

You may remember BlackRock’s CEO Larry Fink saying in an interview with CNBC in early January:

That was back when BTC ETFs were approved and a few sources started asking about the next thing - ETH ETF.

2 months later BlackRock, the world’s largest asset manager, tokenized a fund on the Ethereum blockchain.

They call it BUIDL. And it attracted $244.8m in the first week.

The context - What is tokenization?

Tokenization means bringing traditional assets on chain.

This can be anything from real estate, art, and gold, up to digital securities (bonds, stocks, etc.).

While there are some attempts to start selling frictional houses on the blockchain (RealT for example), what is really driving the discussions is the latest category: securities.

These tokenization attempts are under the category of Real World Assets (RWA).

In general, RWA will bring financial assets, such as US bonds or Tesla shares, on a blockchain in the form of tokens.

These tokens have the advantage that they make transactions much easier, can work 24/7, and can be permissionless - anyone can access them.

For regular users, it shouldn't make a big difference except for a 24/7 market. But for crypto investors, this is important because now it could be powered by blockchain - Ethereum and Avalanche are already seeing first use cases.

The impact - RWAs

When the world’s biggest asset manager makes a decision, the market is watching.

We already had big names in the space, such as Citi, JP Morgan, or Franklin Templeton, but with BlackRock entering the space, we are a huge step closer to Larry’s idea of tokenizing the financial world.

• Soon after BlackRock, HSBC listed a tokenized gold product for retail investors in Hong Kong.

• Australia is joining with tokenization of natural resources (Ethereum and Avalanche).

• And of course, every crypto in this category on Coingecko or Coinmarketcap enjoyed the attention.

My take

I see RWA as one of the important use cases for blockchain - a secondary marketplace in general, especially for financial assets (far away), real estate (very far away), and tickets (almost there).

From an investment perspective, this is how the narrative investing we discussed last week looks in action - every RWA project pumps, no matter how good it is today.

For me this is a long-term investment I have watched for some time - jumped into Ondo 1 day after it hit the market, accumulating Avalanche since their RWA announcement, …

If you want to join now, I would consider waiting for the hype to fade away, or DCA, or lower caps, or less obvious ways.

For example, many RWAs use Chainlink’s CCIP. According to a Dune dashboard, it generated $500.000 in fees since last July.

Flows are back (s, s)

• Last week was bumpy with net outflows totaling $887.7m.

• New ETF issuers in the US saw US$1.1bn inflows, reducing Grayscale’s significant US$2bn outflows that week.

• Even though we saw a 12% pullback on BTC, we are back in the black and BTC has gained almost 2% since last Monday.

NEAR launches Chain Signatures, unlocking “DeFi for non-smart contract chains including BTC” (s, s, s)

• Chain Signatures enable NEAR addresses (both wallets and smart contracts) to sign transactions on other blockchains.

• With that, DeFi protocols can utilize assets from other chains without requiring a cross-chain bridge.

• At launch, this will include Bitcoin, Ethereum, and Cosmos network chains, as well as DogeCoin and XRP Ledger. It will soon support Solana, TON Network, and Polkadot, according to the team.

My take: I’ve been bullish on Near since January. My problem was the UX and limited support of other blockchains. Now this might change, and big time. If they manage to seamlessly leverage BTCs liquidity, then we don’t need L2s on BTC and some of the BRC-20 focus could switch to Near and its ecosystem.

Near leverages Eigenlayer and will be secured by Eigen’s ETH restakers —> another positive signal for Eigenlayer, and with that dependency and risks.

I can see Near growing a little more, probably surpassing DOT, but not Avax. Since I already have the desired part of my portfolio in Near, I’d explore the ecosystem - DEXes, dapps, or even Meme coins.

Legal turmoil - Coinbase, Ripple, Kucoin, Binance

• SEC's Coinbase case proceeds. A judge refused to toss the SEC's broader case against Coinbase operating as an unregistered intermediary of securities (s, s).

• Ripple and SEC crossfire continues. The SEC charges Ripple with a surprisingly high $2b fine. XRP token remains calm, but we might see increased volatility (s).

• KuCoin was indicted for a multi-billion dollar crime. KuCoin and its founders were indicted for violating the Bank Secrecy Act. The exchange withdrawals topped $1b (about 20%) in 24 hours after the news (s, s).

• Nigeria taking down Binance? Nigeria's tax authority charged Binance with tax evasion, detaining two senior executives (s, s)

A new player on the BTC ETF field - The Hashdex Bitcoin Futures ETF $DEFI (s).

Base is taking over Solana in the memecoin mania, soaring by 445% in 24 hours (s).

Big AI merge - Ocean Protocol, SingularityNET, and Fetch AI proposed a partnership to collaborate on AI research and development. Part of the proposal is merging their tokens into one - ASI token (s, s).

Until next time,

Matt.