Unchained - The 4 Factors That Will Determine Which Spot Bitcoin ETFs Win Market Share - Ep. 591

Starting point is 00:00:00 And I think that they'll undoubtedly be a nice tailwind for Coinbase, right? They are the custodian for the vast majority of filings. I think they're absolutely going to benefit from it. And presumably, they'll be the primary trading venue for the authorized participants that, again, are arbitraging between the price of underlying Bitcoin and the price the ETF itself. So that will also drive additional trading volume to the exchange in addition to the custody fees. Hi, everyone.

Starting point is 00:00:29 Welcome to Unchained, your no-high resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto eight years ago and as a senior editor at Forbes was the first Main Tree Mead Reporter to cover cryptocurrency full-time. This is the January 5th, 2024 episode of Unchained. With I-Trust Capital, you can buy and sell crypto in a tax-advantage retirement account. Enjoy significant tax advantages, 24-7 access, and the industry's lowest fees. Arbitrums leading layer-to-scaling solution,

Starting point is 00:00:59 offers you ultra-cheap and lightning-fast transactions, all with security rooted on Ethereum. Visit arbitram.io today. VaultCraft is your no-code defy toolkit for customizing non-custodial automated yield products on any EVM chain. Join the referral program today and start earning rewards. Learn more at vaultcraft.io.

Starting point is 00:01:21 The scorebed app here with trusted stats in real-time sports news. Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions. That's not really what I do. Is that because you don't have any knees?

Starting point is 00:01:38 Or? The score bet. Trusted sports content, seamless sports betting. Download today. 19 plus, Ontario only. If you have questions or concerns about your gambling or the gambling of someone close to you, please go to Connixonterio.ca. Today's guest is Spencer Bogart, General Partner at Blockchain Capital.

Starting point is 00:01:55 Welcome, Spencer. Hey, Laura. Good to see again. for having me on. The spot Bitcoin ETF race is in full swing with Bloomberg senior ETF analyst Eric Valcunis, christening it at the Coin Techie Derby. Over the holidays, things heated up with additional filings, plus the start of the fee war, which we will get to in a little bit. But let's start by talking about some of the more recent events. Coming into this week, a few authorized participants for the ETFs had been named, J.P. Morgan, Jane Street, Virtue, Cantor Fitzgerald.

Starting point is 00:02:26 Then on Wednesday, CoinDesk reported that Goldman's Facts is in talks with BlackRock and Grayscale to become an authorized participant or AP. Can you explain what an AP is and why this is a big deal? Oh, sure. So the authorized participant for these ETFs, you can think of them as at-scale professional arbitrageeurs. So their job is really to make sure that the ETF itself trades in line with the price of the underlying. So, you know, if there's any deviation between, let's consider a spot Bitcoin ETF here. If the ETF is trading at a price that is at a premium to underlying Bitcoin, then of course people are going, the APs are going to buy low and sell high.

Starting point is 00:03:08 So in that case, if let's see, the ETF is at a premium, then they're going to create more shares of the ETF by submitting a basket of Bitcoin to the ETF issuer. The ETF issuer is going to give them freshly minted shares of the ETF, which they're then going to sell in the market. That selling pressure helps bring price down and keep it in line. And that work, works in reverse as well, right? So if the ETF was trading at a discount, they're going to step into the market and buy shares the ETF and redeem them with the issuer for the underlying Bitcoin. And why were people excited about the notion that Goldman Sachs might be an AP? Yeah, you know, I mean, Goldman Sachs is a 800-pound gorilla in the world of Wall Street.

Starting point is 00:03:46 So the fact that I think it's probably the most platinum-plated brand name in the world of high finance, if you will. And so Goldman Sachs can involve. is certainly a bullish indicator, I think, to some observers. And would there be any benefit to BlackRock and Grayscale to have Goldman Sachs as an AP or is it just the brand recognition? Not that I'm aware of, right? I think it's brand recognition. You know, I mean, overall, the job of an AP is relatively straightforward, right?

Starting point is 00:04:14 It is that exact buy, low, sell high thing. The job is very important. You know, I think to some from the outside, it looks like they're just being given free money. I guess to a very limited extent that's the case, but you have to keep in mind that for most of them, they're doing to that scale where, you know, if there's a deviation of, you know, a cent or more, then they'll step in and perform that arbitrage, which of course is overall good for the market. It means that me or you or anybody else that just wants to go and pick up exposure to this can be relatively confident that the ETIP is trading in line with

Starting point is 00:04:43 the price of its underlying. You don't have to worry about, you know, paying some big premium for it. On Wednesday afternoon, Fox Business reported that SEC staff attorneys from the Division of trading in markets met with officials from the major exchanges, the New York Stock Exchange, NASDAQ and Chicago Board Options Exchange, where the ETS would trade. What do you think is the significance of that? Sure. So, I mean, there's a lot of different kind of motions happening behind the scenes, some of which seem like they're in the public domain. I'm not aware of all of them. You know, before I even answer that question, actually, I should probably just give listeners a little bit of perspective on who I am, where I'm coming from, and what I am and have not qualified to comment on.

Starting point is 00:05:21 so they can kind of look at it through the right lens here. The high level here is just that I'm a venture capitalist. I invest in early stage technology companies, protocols, and networks within the broader crypto space. I've been doing that for about seven years. Our firm, blockchain capital, is 10 years old. Prior to that, I was an equities analyst. So that means I'm working inside of an investment bank in a research capacity.

Starting point is 00:05:46 And I'm publishing buying sell ratings on various stocks. I used to cover SaaS and internet companies as well as Bitcoin. And then prior to that, I was an ETF analyst, which is part of the reason that you and I are talking here, Laura, is because of that unique crossover between the world of ETFs and the world of crypto. But what I don't do is typically focus on some of the kind of shorter term price movements. Again, as an operator of a venture fund, our time horizon is 10 to 12 years. Any given investment has a time horizon of maybe three to 11 years. So that's a little bit about the perspective and where I'm coming from. Now, as it relates to the meetings between the SEC and some of the exchanges,

Starting point is 00:06:26 to me, that looks like some of the legwork that needs to be done before an ETF actually goes live. But honestly, I'm not familiar with all of the motions that kind of happen behind the scenes and what sequence. Yeah, yeah. I think the main thing is it probably just indicates that things are getting serious and getting close to launch. However, there was something that happened Wednesday morning. There was a report by a company Matrixport that said that the outlook for ETF approvals was not clear. And in fact, they asserted that probably the approvals would not happen. That sent the Bitcoin price tumbling by 7%.

Starting point is 00:07:06 What do you think of that report? Do you think the concerns are legitimate? Yeah. So despite what I said prior about not kind of focusing on day-to-day price movements, I did pick up that report from Matrixport. just because I was curious about, you know, what additional intel did they have? You know, when I read the report, I was pretty underwhelmed by the substance of it, which to me was surprising that Bickwin would respond to such a significant extent.

Starting point is 00:07:31 And I think that's really just an indication the market was probably overbought in the short term and very, very fragile to any kind of negative news. So, you know, when I see the market react like that, 7% to thing that person said on the internet, that tells me that, you know, the market was just a little bit overreacted. extended in the short term. Yeah, yeah. The report noted that some, like, some number of the commissioners are democratic and it was kind of a political argument, but it kind of cuts against all the movement we've been seeing with, you know, these meetings and filings. Well, there was just no new information in it, right? There was nothing new that was revealed from that, right? It's like we've

Starting point is 00:08:08 already known the political affiliations with the SEC commissioners, right? So that's the part that was surprising to me that there'd be a price reaction when there was no new news from this. there was just one person's interpretation of the context. Yeah, yeah. And then for listeners who've been in the crypto space for a long time, you might be interested to know also that one of the founders of Matrixport is Jehan Wu, who is of Bitcoin Cash fame. They kind of forked from Bitcoin several years ago.

Starting point is 00:08:38 So one other thing that happened when there was, again, an overreaction was there was the filing of something called Form 8As. and some people thought that was a little bit more significant than it was. But we've also seen that Grayscale, Vanek, and Fidelity filed their registration of securities with the SEC. So what do some of these different forms mean? And which are the filings that really matter that people should watch out for? Oh, geez, Lori, you're really testing my knowledge here. I have to go back more than 10 years to be in the world of ATPs.

Starting point is 00:09:09 And even then, like, Lori, you have to imagine how different this context is. And like we can talk maybe a little bit more about, like, originally, when I started, I started publishing reports on Wall Street about what the impact of a Bitcoin ETF might be. That was back in 2015 or 2016. But in general, even going back to my time working specifically in the ETF industry and watching some of these launches, there was never this much anticipation leading up to the launch of an ETF. Like you never had, even as much as we were in the weeds digging through every single filing, the importance of the exact sequence of events of the various filings never had much attention. Nobody cared. It was, listen, let's tell

Starting point is 00:09:44 tell me when the thing is trading when it's live and maybe I'll be interested. But honestly, this is a time period. Let's see. So this is around 2014, 2013. And at that point, most of the largest ETFs had already been launched, right? There was, you know, the gold ETF was probably one of the last, like, major launches. Otherwise, since then, I mean, today, if you still look at all ETFs that have ever been issued, rank them by AUM, most them were issued far before 2013, right?

Starting point is 00:10:14 So there just wasn't this kind of important. So I don't actually have the familiarity with the exact findings of the sequencing here. Okay. Okay. Yeah. But I think the ones that people are really looking out for apparently is the S1 and then the 19B4s, I guess, the final approval. So at this point, some of the issuers are also saying that they've received seed funding. There's a Bitwise AP that allocated $200 million in seed funding and Black Rock allocated $10 million, or one of its APs, I guess, allocated $10 million in seed funding. So explain what seed funding is and why this is important. Well, when a product goes out to trade on day one, you know, there needs to be

Starting point is 00:10:55 some liquidity in the product itself. So that is kind of the idea behind the seed funding is to create an initial amount of shares that can be traded in the open market. And so it's really an attempt to seed liquidity. And liquidity is certainly one of the more important factors in terms of what is the best product in the market if someone wants exposure to a spot Bitcoin ETF. I probably, if I were to rank those, it's probably distribution is probably the single most important thing. If we think about who are most likely to be the long-term holders and the substantial asset base for these kind of products, it's probably going to be normal people that are holding

Starting point is 00:11:36 them in a retirement account or in a savings or in a brokerage account. and they're probably doing that through an RAA, a registered investment advisor. And most of those registered investment advisors, they have a set of approved products that they can allocate, that any of their financial advisors can allocate a portion of their client's capital toward. So the reason why distribution matters, because if RAs are going to be the important channel for this type of product, well, if your ETF isn't available on their platform, then it's not going to get as much adoption.

Starting point is 00:12:08 So distribution matters a lot here. That's probably the single biggest one. The second one is probably brand because at the end of the day, financial advisors are humans like the rest of us. And there's perceived safety and brands that we know and trust and have operated ostensibly well historically. And then three is liquidity. And so that's the one that we're just touching on with seed funding. Seed funding can help impact that initial liquidity. Probably the one that I would just call out after that. And I would write those in orders. It's probably distribution, brand, liquidity and then expense ratio. So the fees that are charged for the ETF.

Starting point is 00:12:43 All right, yeah. And we're going to talk about that in a moment. But first we'll take a quick word from the sponsors who make this show possible. With Amex Platinum, almost every purchase made with your card can be covered with points, including new tastes, new fits, and virtually everything in between. That's the powerful backing of Amex. Conditions apply. Did you know you can buy and sell crypto with tax benefits in an end of?

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Starting point is 00:13:50 And with the recent launch of orbit, Arbitrum welcomes you to build your very own tailor-made layer 3, or an orbit chain. Propel your project and community forward by visiting Arbitrum.io today. Back to my conversation with Spencer. So as we just discussed over the holidays, the applicants did begin revealing the fees that they intend to charge. Ark Invest in Valkyrie set the fee at 0.8% annually, which is 80 basis points. Fidelity came in at 0.39%. And Invesco Galaxy actually chose to waive the fees for the first six months and for the first $5 billion in assets.

Starting point is 00:14:29 So how do you think this fee competition will affect how well each of these potential ETFs doesn't attract? So I definitely think it's going to be a very important factor. Again, I did, at least from the, you know, let's call it the first three months or six months or nine months of trading, I would put it kind of below distribution brand and liquidity, but I do think it's going to be very important. Right. I mean, the reality between all these ETF issuers is that they're looking at a market where it's going to be winner takes most, right? Once you have something that is out there is the most liquid product, you can continue to basically undercut your competition by lowering your fee rate, your expense ratio on the fund. Because when you're doing that scale, you can also

Starting point is 00:15:14 drive better fees with all of your service providers. So you can shop around for different custodians. And you can say, listen, I have a massive amount of assets here that I could take to you for business, but you know, you're going to need to give me a break on rates. And of course, when they, when custody cost the issue or less, then they can also pass along those savings to the end users, to the investors and the holders of these types of assets, which sets up a situation where people, the ETFs that are out in front are likely to get to extend their lead and pull further out in front. So, you know, I think initially most of them are going to want to try to shoot for a reasonably low expense ratio and then optimally move that down over time to kind of undercut their competitors. So as of the time

Starting point is 00:15:59 of recording, BlackRock has not yet set its fees. And with these low fees that we're seeing from Fidelity and Invesco Galaxy, what would you project Black Rock will settle on? I'm going to guess they're going to be at the lower end of that spectrum. I'm going to guess, if not the lowest, then they'll be close. Again, I did mention that some of the factors that are probably more important here are going to be distribution and brand, which BlackRock does very well on, right? They have the distribution and they have the brand. You know, again, if I'm a financial advisor and I'm sitting there, you know, I say, okay, great, the Black Rock product is available in my platform. Check. The brand is good. Check. Liquidity will have to wait and see, but given the

Starting point is 00:16:35 scale of BlackRock, it would be hard to imagine that it's not reasonably liquid. And then if the BlackRock product cost me an extra at 10 basis points or 20 basis points, would I still allocate my clients toward it? Probably. Right. So I think that they probably have a little bit more wiggle room than some of the other issuers that are out there. But nonetheless, I think they'll want to be competitive, given that it is a winner-takes-most kind of game. Yeah. And given Even that, I saw that Nate Garaci of the ETAF store tweeted how Vanguard and State Treat are sitting this out. And then he said, quote, notably, six of the top 10 ETF issuers are passing on spot

Starting point is 00:17:11 Bitcoin ETFs. And he named Schwab, JPMorgan, First Trust, some of those. So how do you think this will affect competition? I think that there's still going to be plenty of competition, right? You get four of the top 10 issuers and then there are more combined in total, right? I think that there is more than sufficient competition to drive the favor of favorable outcome for end users and for investors. I think that the decision for some of them to sit it out is in some cases ideological, right? I think that management of some of those organizations

Starting point is 00:17:38 is not keen to create this type of a product. I think that some of them are looking at it and realistically saying, given the players that are already in the race, our chances of being that number one or number two player are very low. I think that's really what it takes to be to generate a meaningful business, particularly for issuers of their size, is they have to be the the number one or number two provider. And if they're looking at a starting lineup that's already extremely strong, they might say, listen, I'm just going to sit out this particular asset at this point in time, and maybe we'll offer something in the future.

Starting point is 00:18:10 So let's also now talk about Grayscale, which obviously kind of kicked this whole thing into motion with their lawsuit over the holiday break. DCG founder Barry Silbert resigned from Grayscale's board, as did DCG President Mark Murphy? What would you say is the significant of those moves? And also, do you think Grayscale will convert on day one? one like the other ATFs, or do you think they might need to wait? So let's see. I guess, first of all, shout out to Grayscale for challenging the SEC and court and also for fighting a long battle here. You know, Michael Sunn and Shine and other people

Starting point is 00:18:41 over at Grayscale have been trying to push for this kind of product for a very long time now. You know, also credit to the Winklecloss guys for also pushing this very, very early. I think it was really their first ETF filings that I was covering. You know, as far as Grayscale and Bury and what it means for GPDC conversion, I have a lot of the cost. I have haven't been following the nuances here probably as closely as you have, Laura. I'm also aware there's some asymmetric info here, right? I don't know all the details of what happened internally, who did what discussions between the various aggrieved parties, nor probably most importantly hear what conversations with regulators have been like. So with that said, I think it certainly

Starting point is 00:19:23 seems like one way to help clear a path for GBDC conversion to try to remove barriers. from the board. You know, it seems like Grayscale still has some outstanding issues with the New York Attorney General, right? I don't believe those have been resolved as of yet. I think they came out late last year. Yeah, so DCG has issues, the parent company of Grayscale with New York Attorney General. You know, I don't have any real insight on that, but I could see it being the type of thing that the SEC might use as a reason to not approve the conversion of GPDC into an ETF. Right. So I would not be terribly surprised that they were not included in the initial batch. But again, I have no particular inside info on that. Yeah, so removing them from the board could potentially pave the way for them.

Starting point is 00:20:12 So obviously, we saw a couple years ago that Bitcoin futures ATFs launched to much fanfare. But what do you think is the future for them after the launch of the spot ETFs? I think that a spot Bitcoin ETF is very meaningful competition for the futures-based products. The futures-based products are, honestly, they're just extremely suboptimal, and I think it's a sad state of affairs that we had those type of products out in the market before a spot product. Aside from the stated fee rate being much higher, the actual realized fee rate or expense ratio here is much more significant, right?

Starting point is 00:20:48 We can really track that. It's not just the fee that the issue or charges, but how much am I underperforming the asset that I'm trying to track with this product? And in this case, it's much more significant than just the stated expense ratio or fee rate of the issuer. And the reason for that underperformance is the inherent cost of rolling futures contracts. So these futures contracts, when it comes up to expiration, instead of actually taking delivery, they roll them into the next month contract. So that implies there's real transaction costs associated with doing that.

Starting point is 00:21:21 And those are borne by the investor, by the end user, by the holder of that asset. So I think a spot Bitcoin ETF is very serious competition for the futures-based products. And I also saw that Tuttle Capital filed for six leveraged and inverse spot Bitcoin ETFs under the name T-Rex. Who do you think those will appeal to and do you see them gaining much traction? Yeah, I mean, so leveraged ETFs in general, I think that the assets under management for those products will absolutely pale in comparison to a spot Bitcoin ETF. they're really just, they're poorly suited products for retail investors that are holding for long time periods, right? So going back to what we're discussing before about these investment advisors, these RAAs, they're not going to put that kind of a product into their client's portfolio.

Starting point is 00:22:12 The reason is because volatility for any of these leverage and inverse products is very bad for performance. So what those products are really used for is for making a, to express a leveraged directional bet over a very short time horizon. So what type of entity typically does that? Typically like a hedge fund or a prop trader. Where they say, listen, I'm very constructive on Bitcoin over the next 24 hours or three days or maybe even a week or a month. And maybe a leveraged ETF is a way to express that directional view.

Starting point is 00:22:46 But they're generally not good products for retail, and I would not expect adoption to be significant in any way compared to a spot. ETF. So one other company in the Bitcoin space that could be greatly affected by the launch of spot Bitcoin ETFs is micro strategy. What do you think could happen to micro strategy stock after the launch of these ETFs? I mean, it's hard for me to see how it's not a headwind in some ways. Listen, okay, so there's an argument you made that it's both headwind and tailwind, right? The tailwind is that ETF approved is good for Bitcoin. Microstrategy is essentially a Bitcoin proxy for the market. So therefore, micro strategy shares should benefit.

Starting point is 00:23:25 Now, the question is, how does it affect the premium that micro strategy investors pay for the amount of Bitcoin that the company actually holds? Right. So I think that that premium today is somewhere in the neighborhood of 30%, right? Meaning that if you were really just considering this as trying to track the price of Bitcoin, you're really paying a 30% premium to the underlying. Now, obviously, once a spot Bitcoin ETF is in the market, that is a much better way to express, to get exposure to Bitcoin as a whole than micro strategy.

Starting point is 00:23:57 So in my mind, there's got to be some significant percentage of micro strategy holders that are using it as their best proxy for Bitcoin exposure. Once a spot Bitcoin ETF is approved, presumably some percentage of those investors switch over to the ETF product. So I think in that case, we can see a compression in the premium. at which micro strategy trades relative to the underlying value of Bitcoin held on its balance sheet. But I think that micro strategy as a whole can still benefit from growing adoption of Bitcoin itself. Another company that would be greatly affected here is Coinbase.

Starting point is 00:24:37 They look like a clear winner since the company was named as the custodian for all but three of the ETFs. And one of those three that it's not custodying is Fidelity's, which is custody in its own. So how big of a deal do you think these ETS will be for Coinbase? his bottom line? Listen, I think that they'll undoubtedly be a nice tailwind for Coinbase, right? They are the custodian for the vast majority of filings. I think they're absolutely going to benefit from it. And presumably, they'll be the primary trading venue for the authorized participants

Starting point is 00:25:07 that, again, are arbitraging between the price of underlying Bitcoin and the price of the ETF itself. So that will also drive additional trading volume to the exchange in addition to the custody fees. So it's hard for me to see how it's not very constructive for Coinbase. you know, again, given that we primarily operate in private markets, I haven't run the numbers to say how much that could impact their top or bottom line, but it's certainly a significant amount. Okay, so now lightning round. How quickly do you think the ETS will take to begin trading after approval? Ooh, geez, that one's above my pay grade, but I'm going to save

Starting point is 00:25:41 in less than a week. And how much money do you project will flow into spot Bitcoin ETFs in the first year? Oh, geez, Lord. That's a dangerous question. I need to go back and calibrate myself on some of the like first week flows of different types of assets. I do think that today there are quite a few different alternatives that people could use. So okay, I'll keep it tight for a lightning round. I'm going to say that flows will underwhelm in the short term and exceed expectations in the long term. And since most ETS end up being winner take most, as we discussed earlier, which of the ETF

Starting point is 00:26:18 issuers do you think will come out on top? Look, I think from a traditional Wall Street perspective, it's hard to ignore BlackRock as a major, major contender to be a frontrunner. You know, I also want to throw, you know, some credit to Bitwise, right? They've also done a ton of work through, we're also an investors, full disclosure, and a very happy investor in Bitwise. But they've done a ton of legwork over the past six years of building out those channels into RAs.

Starting point is 00:26:44 And I talked about distribution being the single most important factor. and Bitwise has done a lot of legwork to make sure that they are available, their products are available, on the platforms of major RAs. So, you know, I think that some of them might prefer an issuer that has a little bit more domain expertise than BlackRock, who has most only recently chited into this market. And I think that could point them toward Bitwise instead. All right. Well, Spencer, thank you so much for coming on Unchained.

Starting point is 00:27:11 Thanks so much, Laura. Don't forget. Next up is the weekly news recap. Today, presented by Unchained contributor Megan Christensen. Stick around for this week in crypto after this short break. Defi just got way easier with Valkraft, your No-Code toolkit for building, deploying, and monetizing automated yield strategies in a few clicks. Forget spending months of R&D and capital when you can instantly launch your crypto fund with Valkraft on any EVM chain. From wallets and institutional service providers to a non-DFI-Gens, anyone can use Valkraft to supercharge their crypto.

Starting point is 00:27:47 Join VaultCraft's referral program, unite with the community, and supercharge your crypto. Details on VaultCraft.io. Thanks for tuning in to the weekly news recap. I'm Megan Christensen, a producer here at Unchained. On New Year's Eve, orbit chains cross-chain bridge suffered a major hack, leading to the loss of $81.5 million in various cryptocurrencies and stable coins. The attack involved five separate transactions to different wallets, including 50 million in stable coins, 10 million in wrapped Bitcoin, and approximately 21.5 million in

Starting point is 00:28:22 Ethereum. This hack capped a year that saw crypto users lose nearly $2 billion to similar incidents, although the figure did represent a 50% reduction from the previous year. Further investigation by matched systems, a blockchain analysis firm, which was reported by Coin Telegraph, suggests that the perpetrators of the Orbit Bridge heist may have been involved in several other 20, 2003 crypto cyber attacks, including those against coin spade, coinex, and atomic wallet. Their analysis, identifying patterns akin to those used by the notorious North Korean organization, the Lazarus Group, revealed a complex web of transactions. The attackers funded a wallet using tornado cash to obscure fund origins, and then used a swift

Starting point is 00:29:06 protocol to transfer funds across chains, eventually cashing out through a Tron wallet, possibly linked to the Commonwealth of the Independent States region. These methods mirror techniques seen in other notable hacks, such as those of DFX finance, Deribate, and Ascendix. Amid these revelations, the U.S. Federal Bureau of Investigation has recognized a Lazarus group as the culprit behind the 2023 atomic wallet and coins-paid hacks. Orbit chain, in collaboration with the Korean National Police Agency and KISA, has intensified its investigation, even to uncovering.

Starting point is 00:29:41 a quote, significant clue, end quote, in the process, though the details remain undisclosed. In related news, D5 Protocol, Radiate Capital, suffered a $4.5 million hack exploiting a new market activation vulnerability, prompting them to temporarily suspend lending and borrowing activities on Arbitrum. Moreover, and quite ironically, the founder of Nest, a security-focused crypto wallet app, lost $125,000 in a phishing scam involving a counterfeit token. for the second trial, Sam Bankman-Fried await sentencing. In a pivotal development, U.S. prosecutors have opted to not pursue a second trial against Sam Bankman-Fried, former CEO of the defunct FTC cryptocurrency exchange. Convicted in November on seven counts of fraud and conspiracy

Starting point is 00:30:29 involving the embezzlement of $8 billion from FTC's customers, Bankman-Fried sentencing is scheduled for March 28, 2024. The latest decision, driven by strong public interest in a swift resolution to the case acknowledges that most of the evidence relevant to the additional charges, such as campaign finance violations and operating in unlicensed money transmitting business, was already presented during the first trial. And the Bahamas, crucial to this legal process due to extradition treaties, hasn't yet consented to trying the remaining charges. With this backdrop, the focus shifts to the upcoming sentencing, which will likely address restitution for Bankman Freed's victims.

Starting point is 00:31:10 Vitalik Buterin updates 2024 roadmap for Ethereum. Vitalik Buterin, Ethereum's co-founder, shared an updated roadmap for Ethereum in 2024, maintaining a steady course with only minor adjustments from the previous year. Central to this strategy are six key components. The merge, surge, scourge, verge, verge, and splurge. The merge, executed in 2022, transitioned Ethereum to a more energy-efficient proof-of-stakes system, drastically cutting energy consumption and strengthening the blockchain finality. Beteran's roadmap focuses on scaling transaction capabilities through the surge,

Starting point is 00:31:49 aiming for 100,000 transactions per second. The scourge and verge prioritize mitigating economic centralization risk and simplifying block verification, respectively. Meanwhile, the purge and splurge concentrate on streamlining the protocol and broader ecosystem improvements. This updated vision stays true to a theory. Ethereum's original goal of a decentralized privacy-focused network with an emphasis on peer-to-peer messaging and decentralized file storage. It's also in line of Vitalik's recent appeal to the

Starting point is 00:32:21 crypto community to go back to the cypher punk ethos that was so characteristic of the early days of the industry. And travel researchers continue for Binance's CZ. Cheng Peng, CZ Zao, the founder of Binance, has been denied permission for the second time to travel abroad by a U.S. federal judge. As Zau awaits sentencing in February for criminal charges in the U.S. District Court, Judge Richard Jones, upheld the travel ban, citing concerns that Zau might be a flight risk. This decision aligns with a prosecutor's stance and marks a continued restriction on Zau's international movements. Judge Jones had previously overturned a ruling allowing Zau to return to the United Arab Emirates ahead of his sentencing. The details of Zau's arguments against

Starting point is 00:33:06 the travel restrictions remain undisclosed. closed in the sealed ruling. Zau, who had previously pleaded guilty to violating the Bank Secrecy Act, is currently out on a $175 million personal-recognance bond, along with other financial conditions. The IRS enacts new crypto reporting rules for large transactions. Effective January 1st, 24, the U.S. IRS is requiring crypto investors engaged in, quote, trade or business, end quote, to report transactions exceeding $10,000. This directive, part of the 2021 Infrastructure Investment and Jobs Act, aligns digital asset transactions with cash reporting standards,

Starting point is 00:33:46 although what constitutes a, quote, trade or business, end quote, transaction, as opposed to a, quote, hobby, end quote, related one, is subject to interpretation. In cases where transactions are required to be reported, the IRS demands details, including the sender's name, address, and Social Security number within 15 days of the transaction. This measure aims to decrease the tax gap in the U.S. by monitoring large crypto transactions.

Starting point is 00:34:15 However, practical application challenges arise, as highlighted by CoinCenter's executive director, Jerry Brito. Complexities include reporting center details in decentralized transactions and determining the fiat value of cryptocurrencies. This has raised concerns about privacy and legal clarity. Despite a previous legal challenge by CoinCenter, the IRS has yet to provide specific guidance, leading unanswered questions about compliance and reporting methods. In a related topic, as the Iran tax deadline loomed, there was a notable increase in NFT tax loss harvesting,

Starting point is 00:34:49 with services emerging to help traders sell now worthless NFTs for tax benefits. And USDC stablecoin briefly depags amid market turbulence. Circles USDC stablecoin experience a temporary depegging on finance, dropping to 70, $0.34 cents amid a broader market sell-off, fueled by uncertainties around the approval of a Bitcoin ETF. The DPEG-in resulted from substantial cell orders, surpassing the available liquidity. This instability coincides with the liquidation of derivatives' positions worth over $650 million. And that's all. Thanks so much for joining us today. Unchained is produced by Laura Shin, with help from Kevin Fuchs, Matt Pilchard, Juan Aronovich, Megan Gavis, Nelson Wang,

Starting point is 00:35:35 Ashank and Margaret Korea. The weekly recap is written by Juan Aronovich and edited by Nelson Wang. Thanks for listening. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check out markets daily five days a week with host Noelle Atchison. Follow the Coin Desk Podcast Network for some of the best shows in crypto.

Unchained - The 4 Factors That Will Determine Which Spot Bitcoin ETFs Win Market Share - Ep. 591

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