Wall Street Swoons for Altcoins and the Drums Beat for Crypto ETFs: A DeFi Summer Roundup

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Welcome to GDF’s FI Corner. We had a little break for the summer, but are back with a round up of the top stories from the establishment’s adoption of crypto. The US Senate bill may have dominated the news over August – and rightly so. The bill saw the global crypto industry put aside differences and convene to campaign for changes to the proposal.  A key moment in the crypto ecosystem’s path to maturity, it has been heavily covered in The Defiant and beyond. Aside from this (and a weeping footballer being consoled with crypto-fan tokens in his arrival at Paris Saint Germain), here’s what else happened in August: 

1. “Not just Bitcoin”: Altcoins are having their moment with institutional investors 

Institutions are rushing back into crypto with $21M net inflows, following six weeks of outflows. This time, however, the funds which saw the largest inflows were not Bitcoin-related. Funds with exposure to Solana and Cardano related products saw the largest inflows with $7.1M and $6.4M respectively. These are followed by Ethereum and Litecoin related products. 

Bitcoin, meanwhile, saw its seventh week of outflows. This is expected to change with Bitcoin reaching $50K on August 23rd. 

2. Could we see crypto ETFs in the USA as soon as October?

While ETFs have been available across Europe for a while, investors in the US have been awaiting approvals from the SEC with anticipation. The SEC has yet to approve an application for a Bitcoin ETF, delaying decisions on high-profile applications. This includes applications from WisdomTree, who launched a Bitcoin ETF on Switzerland’s SIX stock exchange back in 2019. 

While some experts believe that we won’t see approvals in the USA anytime soon, Bloomberg analyst Eric Balchunas thinks this may be closer than we imagined. To Balchunas, the recent withdrawal of VanEck and ProShares’ Ethereum ETFs was a good sign for the approval of their Bitcoin-related products. 

Deloitte’s report shows the conviction within financial institutions about the role that digital assets will play across their business, and indeed how they will look to define their role in the age of the digital currency.

Others have wagered that Grayscale’s Bitcoin ETF is likely to be the first to be approved. Partnering with Bank New York Mellon on this project, Grayscale announced that it was “100% committed to converting Grayscale Bitcoin Trust into an ETF” earlier this year. Industry experts believe that having trusted institutions on side will strengthen their filing. 

3. Deloitte survey confirms that financial executives within institutions are focused on digital assets 

Deloitte released their 2021 Global Blockchain Survey, showing how “Blockchain is driving change in the holistic financial ecosystem, from deposit taking to payments, lending, investing, and trading”. 

Research papers from consultancies on the disruptive nature of DLT are not new, but Deloitte’s report shows the conviction within financial institutions about the role that digital assets will play across their business, and indeed how they will look to define their role in the “age of the digital currency.” 

Notably, 97% of financial service institution pioneers agree that organisations will lose opportunities for competitive advantage if they don’t adopt Blockchain. Survey respondents expect to see a significant positive impact on their organisations and projects from stablecoins and CBDCs; algorithmic stablecoins; and enterprise-controlled coins. The paper concludes that “participation in the age of digital assets is not an option – it is inevitable.” 

As Ami Ben David, CEO of private markets digitization firm Ownera, puts it: “the dam is about to break open.” 

4. DeFi transforming market data distribution

While we know that DeFi has the potential to transform traditional financial services, we have not had much evidence of what that would look like. 

The Pyth (“sounds like myth”) Network, alongside Jump Trading, Virtue Financial, GTS, Hudson River Trading, and DRW Cumberland, have launched their DeFi project.

Pyth collects and distributes data on stock, fiat currencies, cryptoassets, and commodity deals supplied by high-res and exchanges, and puts it on a blockchain. This data can then be used in other crypto trading projects. 

Built on Solana, Pyth’s goal is to be a bridge between traditional markets and crypto – acting as an oracle between the two. Developers are finalising the governance structure, with a view to becoming fully decentralized. 

The project has also attracted US stock exchanges IEX and MIAX Pearl, currency venue LMAX and crypto derivatives exchange FTX. 

5. Oil giants move into Bitcoin mining to reduce greenhouse gas emissions, further complicating the Bitcoin-energy debate…

One of the many arguments touted by crypto-skeptics is that we should not adopt a technology that consumes “more energy than Argentina.” The debate is a complicated one, with many failing to grasp key elements such as renewable energy usage; developments in consensus mechanisms; carbon footprints of legacy systems; and overall social utility of cryptoassets. 

Just to confuse matters further, it may be that the solution to make Bitcoin mining green is…oil production? More than this, Bitcoin may play a crucial role in making oil production more green. 

Crusoe Energy Systems has built data centres at shale drilling sites to harness some of the surplus gas at source and turn it into electricity used to mine Bitcoin. 

As a by-product of oil production, unusable gas is often flared – producing significant amounts of greenhouse gases such as methane. Oil giants, including Saudi Aramco, Gasprom, and ExxonMobil, are turning towards mining Bitcoin. As reported by Trustnodes, “If all the gas that is completely wasted in being flared was used to power bitcoin mining, it would be sufficient to provide energy for the entire bitcoin network many times over.” 

With the mining occurring on site, Bitcoin would efficiently be using remote energy that no-one wants. 

Global Digital Finance is an industry membership body that promotes the adoption of best practices for cryptoassets and digital finance technologies through conduct standards developed in a shared engagement forum with market participants, policymakers and regulators. Over 140 global organizations are members of GDF and over 350 industry professionals from around the world have worked on developing the GDF codes of conduct, the only global standard in this emerging sector.