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Altcoin

Ethereum ETFs bring substantial benefits, yet challenges remain | Opinion

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For weeks, speculation has been mounting about when the US Securities and Exchange Commission (SEC) will approve spot Ethereum exchange-traded funds (ETFs). The introduction represents a transformative development in the cryptocurrency investment landscape, as it brings the potential to democratize access to Ethereum (ETH) investments, enhance market stability, and attract a more diverse investor base. Less discussed but equally important, however, is the need for a balanced consideration of the inherent risks investors should take into account.

On the plus side, Ethereum ETFs help simplify the process of investing in Ethereum, making it accessible to a broader audience. This ease of access is particularly beneficial for traditional investors who may be unfamiliar or uncomfortable with the complexities of direct cryptocurrency investments. Issues related to maintaining passphrases, cold storage, security, and multisignature (also known as multisig) access are a massive barrier and source of friction for investors looking to diversify away from traditional assets such as bonds/equities.

SEC approval has the added benefit of providing regulatory assurance. As a regulated financial product, an Ethereum ETF offers a level of security and oversight that is not present in the direct cryptocurrency market. This regulatory framework can instill confidence among investors, especially those wary of the unregulated nature of cryptocurrency exchanges. Including an Ethereum ETF in investment portfolios allows for greater diversification in an uncorrelated asset that many see as the future of finance. 

Cryptocurrencies often have different performance metrics compared to traditional assets, providing a hedge against market volatility and offering the potential for higher returns. As investors look beyond the 60/40 model for investing, Bitcoin ETFs and Ethereum ETFs provide a secure and regulated product to realize these goals. There’s also the potential benefit of institutional investors entering via ETFs, creating a larger, more mature, and more stable cryptocurrency market. Although it remains to be proven, increased institutional participation, driven by the availability of a regulated investment vehicle, could lead to more stable trading patterns and reduced volatility.

Not without challenges 

That being said, the potential benefits of an Ethereum ETF are still hypothetical and remain to be played out. With potential benefits come the potential risks that investors should weigh up, Ethereum remains a volatile asset, and an ETF will inherit this volatility. Investors must be prepared for significant price fluctuations and understand that the ETF does not eliminate the inherent risks of the underlying asset. 

There are also regulatory and technological uncertainties, as the evolving regulatory landscape for cryptocurrencies poses potential risks. Regulatory changes can impact the ETF’s performance and operations, with elections approaching in the US this November, it remains to be seen how supportive the government will be towards this nascent sector of the economy. 

Additionally, technological risks related to Ethereum, such as network upgrades and security vulnerabilities, can affect the ETF’s value. For all the industry proselytizes about the benefits of decentralization, there are significant concerns related to potential centralized points of failure, such as Validator Client software approaching a two-thirds majority, the Infura API, MEV Relays or cloud usage that could lead to catastrophic losses if not properly dealt with by the Ethereum community. 

In fairness, the Ethereum community is addressing these concerns related to centralization and being overly reliant on Geth/Teku validator client software. However, investors would be right to have concerns about how new technologies can fall down due to unexpected hurdles. There’s also the potential for market manipulation; while ETFs provide a regulated environment, the underlying cryptocurrency markets are still susceptible to manipulation. This can indirectly influence the ETF’s performance, making it essential for investors to remain vigilant.

A transformative development

The Ethereum ETF is a significant advancement that brings substantial benefits, including increased accessibility, regulatory oversight, and portfolio diversification. It can attract a wider range of investors, from retail to institutional, and contribute to the overall stability and maturity of the cryptocurrency market. However, the potential risks associated with Ethereum’s volatility, regulatory uncertainties, and technological factors cannot be overlooked. Investors must approach the Ethereum ETF with a comprehensive understanding of these risks and be prepared for the inherent uncertainties. No one is suggesting that investors should allocate more than 5–10% of their investment portfolio into digital assets, and if they do, they should be aware of the inherently volatile nature of these assets and their potential downsides.

While the Ethereum ETF offers an exciting opportunity for diversified investment and enhanced market participation, it is crucial for investors to conduct thorough research and consider their risk tolerance. The ETF’s regulated nature provides a safer entry point into the world of cryptocurrencies, but informed and cautious investment strategies remain paramount. By weighing the transformative benefits against the inherent risks, the Ethereum ETF can be seen as a balanced and innovative addition to the financial market, poised to play a pivotal role in the evolution of cryptocurrency investments and the financial services industry in general.

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Bitcoin

US house representative passes new bill targeting crypto-related illicit finance

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The US House of Representatives has approved a new cryptocurrency bill aimed at curbing its use for illegal finance.

Introduced by Representative Zach Nunn (R-Iowa) on Monday, July 22, the legislation seeks to establish a governmental working group to assess the use of cryptocurrency in terrorism and money laundering activities.

This bipartisan effort is designed to enhance public-private collaboration in addressing illicit finance within the digital asset space.

As cryptocurrencies increasingly become a prevalent method of payment, Rep. Nunn emphasized the necessity to provide Americans with secure access while safeguarding them from security risks and illicit financial activities.

“This bipartisan bill will help ensure the United States is prepared to address security risks and prevent illicit money laundering while also protecting consumer choice for all Americans,” said Rep. Nunn.

He also outlined the importance of addressing these challenges collectively to “ensure the long-term integrity of digital assets.”

The bill also reflects broader, sector-friendly initiatives previously seen in the House, such as the Financial Innovation and Technology for the 21st Century Act (FIT21).

However, the Senate has yet to show similar levels of enthusiasm towards crypto-related legislation.

In a speech on the House floor, Nunn described the legislation as “crucial in strengthening America’s national security” and vital for “protecting [the nation’s] digital assets and ensuring the next generation of financial and internet technology is built right here in America.”

The proposed working group, which would operate under the Treasury Department, aims to include experts from various sectors, including blockchain intelligence, research institutions, and fintech companies.

Their goal would be to explore crypto transactions and strategies to deter exploitation by malicious actors.

According to Jaret Seiberg, an analyst at TD Cowen, the bill serves as a response to crypto critics who have called for tougher measures on money laundering. He suggests that this legislative move provides political leverage to counter criticisms directed at the crypto industry.

Additionally, the bill’s introduction coincides with proactive industry efforts to garner support from Vice President Kamala Harris, especially after President Joe Biden announced his non-participation in the 2024 Presidential race.

Earlier in April 2023, the U.S. Department of the Treasury highlighted in a report the vulnerabilities in decentralized finance (defi) that criminals exploit to move and launder illicit funds.

These include the failure of many defi services to comply with anti-money laundering and counter-terrorism financing regulations, alongside weak cybersecurity measures in some services and insufficient regulatory frameworks in certain jurisdictions.

Reports from October also indicated that cryptocurrency might have facilitated funding for the Hamas attack on Israel, illustrating how such transactions can circumvent conventional banking systems.

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Công nghệ

Patrick Bet-David says blockchain voting can improve election transparency

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Patrick Bet-David, founder and CEO of Valuetainment, says blockchain can greatly improve voting systems around the world.

With the world changing so much amid artificial intelligence (AI), blockchain and Bitcoin, Bet-David wonders if new technology is what the world needs to improve the outdated voting process. It’s not only so as to improve voting systems in terms of transparency and accessibility, but to also get more people to develop confidence in these elections and their results.

The entrepreneur shared his thoughts in a YouTube video. Highlighting blockchain as “a shared immutable ledger that facilitates the process of recording transactions and tracking assets in a business network,” Bet-David says these features are what makes the technology suitable for application in blockchain voting.

U.S. states have piloted blockchain voting

To be fair, the issue of blockchain technology and voting isn’t a new topic. Researchers and experts have previously expounded on how countries can integrate this to greater effect. This has happened amid broader integration across virtually every facet of human life, from education, supply chains, health and agriculture.

It’s this growth that has seen some U.S. states pilot blockchain voting systems.

For instance, West Virginia became the first U.S. state to use blockchain voting through a pilot for federal elections. A publicly verifiable ledger that still maintains the anonymity of voters is key to this push for blockchain technology.

In his view, Bet-David thinks this is the way to go.

Other than a decentralized ledger that records votes, immutability means each cryptographically signed vote “cannot be altered without detection.”  

Apart from West Virginia, other U.S. states that have piloted blockchain voting systems are Utah, Colorado, and Oregon.

“In Denver, Colorado, one of the pilot programs allowed overseas voters and active duty military personnel to vote for Municipal elections through a blockchain-based smartphone app,” Bet-David noted.

A voter in Utah also became the first person to vote for president on the blockchain. Meanwhile, blockchain-based voting apps have worked in Switzerland, Japan, Brazil, South Korea and Russia.

Issues with blockchain voting

While he champions the use of blockchain to allow for transparency and accessibility in elections, Bet-David notes that implementation of the technology does face some challenges.

Critics have outlined concerns such as technical and security issues, including scalability and cyber-attacks. There are also legal and regulatory hurdles, particularly around voter anonymity and privacy.  U.S. states that have expressed concerns and are uncomfortable with the system include New York, California, and Texas.

But with trust in the U.S. government having gone down from 73% in 1958 to about 16% today, it might be the new technology that brings younger generation onboard.

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Theo Crypto News

Bitcoin

Ethereum ETFs could go live in July, analyst says

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Bloomberg analyst Eric Balchunas expects spot Ether (ETH)  exchange-traded funds (ETFs) to begin trading in the U.S. in July.

Balchunas updated his forecast for the official launch of spot Ether ETFs, moving the over/under date to July 2.

The crypto expert noted that the U.S. Securities and Exchange Commission (SEC) staff had sent comments on the S-1 filings to issuers, describing them as “pretty light” without major issues. 

He mentioned that the SEC has asked for responses within a week, suggesting a decent chance that the ETFs could be declared effective the following week, potentially before the “holiday weekend.”

Balchunas emphasized that while anything is possible, this is their best estimate at the moment.

On June 13, SEC Chairman Gary Gensler provided some clarity on ETH ETFs during his testimony to Senator Bill Hagerty.

Gensler indicated that he expects the S-1 filings for spot Ethereum ETFs to be approved by the end of the summer. This statement has reinforced the belief that while there may be some delays, approval will likely happen within the next few months.

Balchunas also mentioned that the issuers of spot Ethereum ETFs were waiting for feedback from the SEC’s Division of Corporation Finance (Corp Fin) on their S-1 filings, which they had submitted two weeks earlier.

He explained that this delay was attributed to Corp Fin reviewing these documents for the first time, highlighting that this unexpected situation stemmed from a likely last-minute political shift within the SEC, which surprised Corp Fin as well.

Balchunas further emphasized that there is uncertainty about how quickly Corp Fin could prioritize and process the filings. 

However, some observers believe Ethereum ETFs may not attract as much attention as Bitcoin  (BTC) ETFs because they do not offer staking capabilities.

SEC Commissioner Hester Peirce, known for her liberal stance on cryptocurrencies and nicknamed “Crypto Mom,” has expressed skepticism regarding the SEC’s treatment of Ethereum. Peirce has highlighted that historically, the SEC has categorized Ethereum as a security, unlike Bitcoin, which is classified as a commodity.

The SEC has maintained that Ether is a security, which introduces a distinct set of challenges compared to the approval process for Bitcoin ETFs,” Peirce remarked. 

The Ethereum ETF journey so far

The United States Securities and Exchange Commission (SEC) has initiated the approval process for Ethereum exchange-traded funds (ETFs), marking a notable advancement for the cryptocurrency industry.

On May 23, the SEC approved eight 19b-4 filings. However, trading of these ETFs cannot commence until they obtain the required approvals for their S-1 registration statements.

The 19b-4 forms are regulatory filings that propose amendments to current rules or regulations, facilitating the listing and trading of new securities. Approval of these forms signifies the SEC’s authorization for exchanges to list the ETFs, although it does not ensure immediate commencement of trading for the ETFs.

This progress represents a significant advancement in the approval journey for Ethereum ETFs, which the cryptocurrency community has eagerly awaited. 

Concurrently, the SEC is reviewing the S-1 registration statements filed by Ethereum ETF issuers. These statements offer comprehensive details about the companies and the specific securities they plan to offer. 

At the time of writing, the price of Ethereum (ETH) is hovering around ,562.97, representing a 2.5% increase in the last 24 hours. However, the world’s second-largest crypto is still down by 3.5% on the weekly timeframe, according to CoinGecko data.

 

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Theo Crypto News

Pháp Lý

Crypto and the Kafkaesque | Opinion

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In this week’s #hearsay column, Dorian Batycka marks the 100-year anniversary of the Bohemian writer Franz Kafka’s death on June 3, 1924, taking you on a literary journey through the most “Kafkaesque” moments in all of crypto.

Imagine a world where you are ensnared in a web of bewildering and illogical situations, powerless against faceless bureaucracies that wield omnipotent and indifferent authority. This nightmarish distortion of reality is the essence of the term “Kafkaesque,” derived from the German-speaking Bohemian writer Franz Kafka. Through seminal works like The Trial (1914), The Castle (1922), and The Metamorphosis (1912), Kafka’s narratives have become foundational texts in modern literature, depicting protagonists trapped in existential anxiety and futility. Strikingly, these Kafkaesque themes find resonance in the chaotic and often dystopian world of cryptocurrency, where the promise of financial liberation is fortuitously often overshadowed by paradox and disillusionment.

Wojak, crypto, and the Kafkaesque

Franz Kafka wrote A Hunger Artist in 1922 and published it in 1924, the same year he passed away from a brutal condition that made him die of starvation due to complications from laryngeal tuberculosis. Kafka’s final story centers on a professional hunger artist who fasts for extended periods as a form of art, attracting audiences fascinated by his self-imposed suffering. Despite such dedication, the hunger artist becomes increasingly marginalized and forgotten as public interest wanes, leading to his eventual demise.

It’s a situation that mirrors the experience of crypto’s most titular figure: the wojak. The proverbial McDonald’s night manager whose incessant pursuit of quick wealth becomes an unhealthy obsession, akin to gambling. With wojak consumed by the volatile and often isolating and crippling failure of crypto trading and investment, he finds himself constantly in profound loss and disillusionment. What hunger was to Kafka’s artist, cheap packets of ramen noodles are to the toiling wage cuck hoping to get rich on a Solana meme coin. What could be more utterly Kafkaesque?

Satoshi Nakamoto as Joseph K.

Self-revelations aside, let’s shift gears to conjure the term “Kafkaesque” not with the wojak loser, but with the OG of crypto himself, Satoshi Nakamoto. In Kafka’s The Castle (1922), the protagonist K. struggles against an opaque and inaccessible bureaucratic authority; similar to Satoshi himself, Kafka speculates on the often duplicitous nature of governments, remarking: “You mustn’t believe everything that officials say,” adding, “I have my rights, and I shall get them.”

In The Trial, Kafka describes the arrest of the main character. “Someone must have been telling lies about Joseph K., he knew he had done nothing wrong but, one morning, he was arrested.” Again, one is here confronted with the brutal reality of a system bearing consequences on someone born to change it, i.e., Satoshi, or even CZ, for that matter. The lack of current regulatory clarity in crypto, from legislation being proposed in the EU, MiCA, has only created widespread confusion on the continent, through to the befuddling situation around legislation in the United States, where things have not fared much better, with both Joe Biden and Donald Trump also recently U-turning on the crypto bandwagon.

KafkaCrypto: towards a new theory of technology and doomer

Lastly, think about the idea of paradox itself, perhaps the pinnacle of all Kafkaesque situations. It’s based on a supposition that two seemingly different realities can be true at once. While cryptocurrency was designed to circumvent traditional financial systems and their regulatory frameworks, as the market has grown, so too has the demand for regulation to prevent fraud, protect consumers, and ensure market stability, often under the guise of anti-money laundering (AML) initiatives that exist in stark contrast to privacy-focused tools like Monero or Tornado Cash.

Yet, on top of this reality, a paradoxical situation has emerged: where the decentralized crypto world ethos has increasingly brushed up against the centralized systems that crypto purported to disrupt. Look no further than China’s or Russia’s recently stated that they would embrace central bank digital currencies (CBDCs). Together with omnipresent state surveillance and control, the paradoxical reality of having crypto in the hands of a tyrannical government, while at the same time allowing for encrypted financial freedom, is indeed peak Kafkaesque.

“It’s only because of their stupidity that they’re able to be so sure of themselves,” Kafka concluded in The Trial, perhaps his most seminal work on the illusory nature of justice. It is perhaps in some ways related to the notion of effective altruism prevalent in modern echelons of crypto theory, and famously core to the convinced fraudster Sam Bankman Fried’s worldview, i.e., scamming for the greater good theory of crypto capitalism.

At its heart, cryptocurrency advocates for financial autonomy and individual control over one’s economic identity. Yet, as we mark the centennial since Kafka’s death, it’s clear that the crypto industry has taken on many Kafkaesque qualities. From the mysterious figure of Satoshi Nakamoto to the lowly wojak, through to the unsettling reality of crypto scams and the paradox of decentralization and regulation, the illusory sense of autonomy stands as a remarkable bellweather to how deeply problematic crypto has and continues to be. As Kafka once wrote:

“Every revolution evaporates and leaves behind only the slime of a new bureaucracy.”

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Pháp Lý

Tokenization of real estate: evaluating the promise of securitization | Opinion

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As it gained traction in the crypto industry, real estate tokenization is classified as a security in most jurisdictions with developed financial regulations, such as the United States, European Union, United Kingdom, Australia, and others. In this article, I focus on the limitations of tokenization-securitization and explore why the concept of tokenization should aim to digitize property rights instead of penetrating the very heart of land registries. In my previous article, I outlined the idea of the “title token” and the concept of the next-generation land registry—blockchain estate registry.  Now, let us scrutinize the promise of securitization to illustrate why, without redesigning the system, the digital economy will not progress.

Securitization explained

Traditionally, real estate has been viewed as a valuable asset class but has presented challenges for smaller investors due to its illiquid nature and substantial upfront investment requirements. It is commonly believed that blockchain technology offers a promising solution through the tokenization of real estate. This widespread interpretation involves converting real-world assets into digital tokens tradable on a blockchain, thereby subdividing the asset into smaller, more manageable units. This approach purportedly makes investment more accessible and enhances the liquidity of real estate, as these tokens can be easily traded on secondary markets.

However, while such tokenization has garnered attention, a critical examination of its limitations is essential. The following scrutiny reveals the inadequacies of this model and underscores why a thorough redesign of the land system is imperative to ensure meaningful progress.

Essentially, such tokenization represents securitization. A typical scheme authorized by a financial regulator involves the creation of a special purpose vehicle (SPV), e.g., a corporation or a trust, where tokens represent shares or units, respectively. Rarely, when tokens represent neither of these, such security can fall under a larger category of an “investment product” or “managed investment scheme” found in regulations of many countries since the case of SEC vs Howey in the U.S. in 1946. 

Economically, such a security would generally be understood as someone’s promise in exchange for cash to perform some economic venture that might result in profits. Thus, there are two sides to this deal: someone who promises something and the one who invests money. To complete this picture, there can be a secondary market where such securities are traded between those who hold them and those who want to acquire them.

When it comes to the economy around real estate, traditionally securitized property represents a small fraction of the overall property market. For instance, as of 2023, the market capitalization of US publicly traded real estate investment trusts (REITs) was approximately .4 trillion, which is 1.3% of the whole US real estate value, estimated at 3 trillion. 

Source: NAREIT, Statista, courtesy of the author

This disparity highlights that securitized real estate forms only a minor segment of the broader property market. The limitation arises from the legal nature of such relations. Security is an economic interest in someone’s property (a promise secured with a legal instrument). The one who holds the security is not the property owner. The security holder does not enjoy the whole bundle of legal rights; hence, its economic application is also limited.

Security token vs. Title token: A real estate security token represents the holder’s economic interest in someone else’s property. A title token is the actual record of the property right.

Why #tothemoon won’t happen

Starting from the first wave of tokenization—also known as the initial coin offering boom—in 2016-2017, there has been unreasonable excitement around real estate tokenization, which aligns with the hype that is overall present in the crypto industry. Tokenization is associated with the potential for high profits, which are made on market bubbles. 

Tokenization of real estate is advocated as a way to increase the liquidity of real property. It is usually explained that digital technology along with fractionalization will reduce the barriers and make this investment more attractive. It will, no doubt, but having real estate as the underlying asset projects the behavior of the underlying asset. 

Prices on real estate are not the same as company stock markets, where business expansion and innovation can make company shares skyrocket. Usually, real estate doesn’t dramatically fluctuate; moreover, it is unlikely that one building will rapidly increase in price while the rest around it stay the same. Normally, the real property market moves all in one trend, with some minor discrepancies from region to region.

REITs and real property tokens

It is reasonable to interpolate publicly listed real estate investment trusts (REITs). Investment trusts democratize investments in real estate by reducing barriers, as these are shares of companies that own real property traded on exchanges.

It is evident that daily dollar volumes on REIT markets are much lower than on major stock exchanges. The average daily trading volume (ADTV) of the U.S. equity market exceeded 0 billion in 2023, while publicly-traded REITs often see volumes in the range of billion. 

Source: NAREIT, Russell Instruments, courtesy of the author

Additionally, REIT markets exhibit lower volatility compared to the broader stock market. This stability stems from the nature of their underlying assets—real estate—which typically do not experience dramatic short-term price swings. Most importantly, public REITs go along with the general trend in the real estate market. The performance of REITs often reflects the broader trends in the real estate market because both are influenced by similar economic factors such as interest rates, economic growth, and property values.

So, the overall excitement about real estate tokenization looks more irrational. It is unreasonable to expect that tokenized property will make substantial gains, while, for example, the rest of the real estate market is stagnating. Nevertheless, with the digitalization of finance, it is reasonable to expect a reduction in transaction costs. Web3 and other digital technologies can make security markets more transparent and accountable, rendering some bureaucratic procedures redundant and obsolete. Thus, the advent of innovations can make the REIT market more efficient under the condition that the government reduces red tape to unleash the potential of digital technologies.

Now, facts and some concluding thoughts 

Finally, let us explore some empirical evidence that supports this discussion. STM (Stomarket.com) is a popular resource in the world of tokenized real-world assets (RWAs). Similar to Coinmarketcap.com, it consolidates tokens, their capitalization, volumes, and other essential market data. 

A closer examination shows how much smaller the tokenized RWA market is compared to the cryptocurrency market. STM’s capitalization of listed 465 ‘Real Property’ tokens is 6 million with only .7 million of trade volume per day. For comparison, Coinmarketcap’s list capitalization is .3 trillion, with .6 billion of trade volume per day of over 8,000 coins and tokens listed on the website (as of 14 May 2024). Deloitte analysis indicates more optimistic figures—.4 billion capitalization in 2022, according to their research, which is still 140 times smaller than Coinmarketcap’s list.

In summary, securitization is no revolution, and speculative excitement around the tokenization of real estate markets is far-fetched. Blockchain and other web3 technologies can make the securitization of real estate more efficient if introduced with more progressive regulations. However, securitized property constitutes just a small portion of the whole real estate market, so bringing efficiencies to this small segment does not make much of a difference. 

All property rights, titles, and legal interests, in fact, are locked in government registries—old-fashioned land registries with paper-based transactions and bureaucratic registry and titling services. With web3 technologies, economic relations can become transboundary, online, instant, and peer-to-peer. Programmable relations reduce the need for intermediaries, i.e., agents, lawyers, notaries, conveyancers, and other registrars. 

The old registry constitutes a bottleneck for the future of the digital economy as all this potential efficiency bumps up against the old-fashioned sluggish system. Government inertia to improve the system, i.e., automate and digitize, stifles the further evolution of the economy. In fact, the appearance of traditionally securitized and tokenized real property is a kind of response to that inefficiency. Though, as it was shown, it has a marginal effect that does not change the whole picture.

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Theo Crypto News