Turkey Day
Good morning. Today we've got Ethereum updates, trouble at ConstitutionDAO, poor performance for Grayscale investors, and more. As a reminder we'll be off the rest of the week and you should prepare yourself for questions about your crypto investments over Thanksgiving meals. Enjoy!
What this is:
A "Top 5" of crypto, digital asset, and other blockchain related news sent to your inbox on a daily basis
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Top 5:
- The World’s Largest Bitcoin Fund Is Troubled. Here’s Why.
Bitcoin may be down from all-time highs close to $69,000, but investors in Grayscale Bitcoin Trust (GBTC) are hurting even more. The world's largest bitcoin fund, holding $37 billion in assets, is currently trading at a 14% discount to the fund's net asset value (NAV). What this means is that investors are getting $1 of bitcoin for every 86 cents invested. If that's the case, why aren't investors rushing to buy into the fund until the price is driven back up? One issue is that the fund is now facing more competition with the launch of bitcoin futures ETFs in the U.S. and spot products in Canada. Additionally, investors that bought in while the fund was trading at a premium missed out on significant returns when compared to buying bitcoin directly. For example, an investor who bought GBTC on Dec. 22, 2022, when the premium was at its peak, would have returned 64% through October 2021 versus 160% by directly investing in bitcoin. Grayscale filed an application with the SEC in October to convert the Trust to an ETF, but approval seems unlikely after rejections of other applications for similar products. That may not be such a bad thing, given the fund's 2% expense ratio (about double the typical ETF ratio), which will generate $740 million in annual fee income if recent asset levels are maintained. - Chaos engulfs crypto investors who failed to buy copy of Constitution
While the headline is somewhat dramatic, there has certainly been some drama within the ConstitutionDAO after the group's failed attempt to purchase a copy of the U.S. Constitution after raising for the $40 million. As background, those that participated in the fundraising effort were compensated with governance tokens (NOT ownership tokens) called $PEOPLE that conferred on their holders the right to vote on DAO related matters, such as what to do with the Constitution if the group won. However, after the failed bid, the DAO core team announced they would abandon $PEOPLE because “we did not acquire the constitution and $PEOPLE’s explicit reason for existing has now run its course." The group said they would establish a new token called “We the People,” or $WTP, which would govern a yet-undetermined project. This was their big mistake...Contributors to the project were not happy with the centralized decision in a supposedly decentralized organization. The below comments from the community Discord sum up the general frustration with the core team:
“Core team should have asked people to vote with their tokens”
“There was no need for anything. there was no need for anyone in the core team to deliberate. whole point of dao and crypto infrastructure + ethos was missed.”
The core team has now backpedaled and plans to return all funds to contributors are originally planned. It's estimated that the return of these funds will cost about $1.5 million in gas fees. - Status check: Ethereum in full deflation mode as Eth2 merge gets closer
The march to Ethereum 2.0 continues as the community works to shift away from the current proof-of-work (POW) algorithm and to the new proof-of-stake (POS) algorithm. Recent updates to the protocol have resulted in deflationary issuance of ETH due to the burning of a portion of transaction fees which have exceed the issuance of new ETH. Many in the industry consider this a critical part of the transition to Ethereum 2.0 that will drive the value of cryptocurrency upwards of the coming months and years. Ethereum Foundation community manager Tim Beiko said that the main focus for the wider Ethereum development community is now exclusively on ‘The Merge’, signaling the start of the final chapter in the blockchain’s evolution to PoS consensus. - Senate Banking Panel Head Seeks Added Information About Stablecoins From Issuers, Exchanges
Sen. Sherrod Brown, Chair of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, is concerned that consumers and investors may not understand how stablecoins work and the risks involved. “I have significant concerns with the non-standardized terms applicable to redemption of particular stablecoins, how those terms differ from traditional assets, and how those terms may not be consistent across digital asset trading platforms,” wrote Sen. Brown in his letter to Circle, the payment services company that operates stablecoin USD coin (USDC). Brown also sent letters to cryptocurrency exchanges Coinbase, Gemini, Binance.US, blockchain infrastructure firm Paxos, and other players in the space. - Happy Thanksgiving from the St. Louis Fed!
Top Sharers of the Crypto Top 5:
1. Cameron S. - New York, NY
2. Jake Y. - Greenville, SC
3. Lauren A. - Nashville, TN
Disclaimer: The information contained in this newsletter shall not be understood or construed as financial advice. I am not an attorney, accountant or financial advisor, nor am I holding myself out to be, and the information provided is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation.