Unchained - Why Bitcoin ETF Options Could Unlock Massive Amounts of Capital for Crypto - Ep. 711

Episode Date: September 27, 2024

With Bitcoin ETF options on the horizon, the crypto market is bracing for significant changes. In this episode, Joshua Lim, co-founder and CEO of Arbelos Markets, joins us to explain what the launch of Bitcoin ETF options means for the broader market. Could they unlock vast amounts of capital and set off a new altcoin boom? Josh also dives into the potential effects on Bitcoin volatility, DeFi lending, and even the onchain options markets. Plus, what could the 2024 U.S. presidential election mean for Bitcoin? Show highlights: What are options and why they are significant for bitcoin ETFs How they will affect the price of BTC When options will actually launch and what needs to be done How the launch of IBIT options could lower Bitcoin volatility and compress spreads Whether dominant players in derivatives will suffer from this launch How the launch of options could lead to an “altcoin boom” Why Josh thinks the SEC delayed its decision on ether ETF options How rising Bitcoin options interest could trigger volatility during major options expiries What Josh thinks the impact of the US presidential election will be on the markets Visit our website for breaking news, analysis, op-eds, articles to learn about crypto, and much more: unchainedcrypto.com Thank you to our sponsors! Coinbase iTrustCapital Polkadot Mantle’s FBTC Guest: Joshua Lim, Co-founder and CEO of Arbelos Markets Links Approval for BlackRock’s IBIT The Block: Bitcoin ETFs set to attract liquidity and speculation as IBIT options trading gains approval CoinDesk: BlackRock Bitcoin ETF Options to Set Stage for GameStop-Like 'Gamma Squeeze' Rally, Bitwise Predicts Decrypt: SEC Hits Pause on Ethereum ETF Options Following Bitcoin Nod - Timestamps:  00:00 Intro 01:48 What Bitcoin ETF options are and why they’re significant 05:41 Impact on BTC price 08:17 When Bitcoin ETF options will launch 10:03 How IBIT options could reduce volatility 15:53 Will dominant players in derivatives be affected? 20:40 How options could trigger an altcoin boom 24:12 Thoughts on potential ether ETF options approval 24:47 Rising Bitcoin options interest and volatility risks 28:22 Impact of the 2024 US election on crypto markets 31:48 News Recap Learn more about your ad choices. Visit megaphone.fm/adchoices

the options unlock maybe more lending against ETFs. And then if that's true, right, what does that be? That means there's going to be more capital flowing through the ecosystem. And what we saw last cycle is when you have more capital, that's freely available against the majors, that capital generally flows down the risk spectrum into less liquid and more volatile assets. Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians.

I started covering crypto nine years ago and as a senior editor at Forbes was the first main tree meter partners to cover cryptocurrency full-time. This is the September 27th, 2024 episode of Unchained. Looking to elevate your crypto trading, get zero trading fees, boosted rewards, and priority support with Coinbase 1. Get a free month with code unchained at coinbase.com slash 1. FBTC is the fastest-growing Omni-Chane BTC asset this summer. Join FBTC Points-inspired campaign where you can hold FBTC to earn sparks, lucrative yield, and token drops, all on your Bitcoin.

With ITrust 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. Pocodod is the original and leading layer zero blockchain with over 2,000-plus developers, and the Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem. Join the community at PogoDot.network slash ecosystem slash community. Today's guest is Josh Lim, CEO and co-founder of Arvillos Markets. Welcome, Josh. Hi, Laura. Thanks for having me.

Last week, the SEC approved options for Black Rock's ETF, Ibit. There's still more approvals necessary, but Eric Volchunis of Bloomberg Intelligence tweeted that he expected that they would be approved in, quote, short order. He called this a huge win for Bitcoin ETFs. Can you explain what options are, what this news means, and why it's significant? For sure. So options are a form of derivative, which means it's a contract between two parties that allows some transfer of risk between one party to the other. So the most common type of derivative is obviously a future or most people in crypto are familiar with perpetual swaps. That's an entirely linear derivative, which means, you know,

the asset, the underlying asset goes up or down, the linear instrument, the future or the perpetual swap also appreciates or depreciates by the same amount and value. For an option, it's asymmetric, right? So it's the right, but not the obligation to buy herself something. So if I'm the owner of an option and something goes up, I'll appreciate, I'll get that appreciation on the move higher. But if it goes down, I actually am protected. So I don't lose any money on the way down. So that's if I own something called a call option. So this is this is a way to sort of get asymmetric exposure on an asset or to get leverage. And conversely, if you sell an option, it's really a way to get yield because that option has some value to it, which is typically called

a premium. And you pay that premium up front to own the right, but not the obligation to buy or sell something. Okay. And so why is it that people are pretty excited about this news, about the I-bit options? Sure. So options themselves have existed for many, many years across many different asset classes, equities and interest rates and commodities. For crypto, it's a newer development. I'd say they really came into their own in around the early 2020. That was really the advent of venues like Deribit, which is one of the original crypto options exchanges. And it's very crypto-native, that venue in the sense that it's funded by crypto, like you deposit crypto, Bitcoin or Ethereum. as collateral against the options that you buy and sell, and the options themselves pay out in

crypto. So it's very easy for crypto-native people, people who basically live on Shane or, you know, are very comfortable accessing these, you know, arguably less regulated venues to trade these options. More recently, obviously, the shift in the whole industry has been towards more regulated venues and also towards products that are accessible to institutional users. And so the whole mix, of, you know, volume and trading activity has gone from a largely retail-driven market, which is retail meaning, you know, like mom-and-pop individuals and, you know, us trading in our own personal accounts to institutions like the Black Rocks of the world and the Goldman's of the world and other sort of macro hedge funds that are using crypto

as a way to sort of augment their portfolio beyond the existing set of things that they trade, you know, whether it's stocks and bonds and other things. So with the increasing, you know, institutional participation in crypto, they want to use options, right? They want access to these more sophisticated instruments that allow them to express pretty new odds to use. And I say that because, you know, the way that these options work, you know, you can express something that's like very specific, right? Like you could say, I believe Bitcoin will go up to, let's say, between $80,000 and $100,000 after the election, right? So that's a timeframe and a specific price range. And you can express that in a specific options trade.

That's a very sophisticated way to express the view rather than just say going long, you know, 100x on Bitcoin USD perps. So those are the types of things that are starting to become more prevalent. And having Ibit options really opens the door to more types of users of these products. And then what would the effect be on the price of the underlying of spot Bitcoin? Sure. So there's been a lot of words kind of spoken, written about this on crypto Twitter and on podcast. I think a lot of people, there's kind of two camps, right?

There's one camp that says this means there's going to be a lot of retail users piling into, you know, very short-dated options, the same way we've seen on meme stocks like GameStop and AMC. We kind of saw this with the rise of Wall Street. That's people using very short-dated options to create what's called a gamma squeeze. So what that means is if there's an accelerated move, it just keeps going because they're buying these options and the people on the other side of the options, which tend to be large dealing desks and market makers like the Citadel's of the world. They have to keep hedging that position and they create more demand as the price moves higher. So that's one school thought. And the other one is that there's already a mature market for these options. Like I said, there's already a market called Derivit that's very, very liquid.

trade something like $40 billion notional per day. And there's already been a set of instruments that have been widely available to retail investors. One set of instruments is the BITO options market. BITO is an alternative ETF that existed before the spot ETFs that's based on the CME futures. So it's like a rolling CME future strategy. That had options listed on it, I believe, in late 2021. So it's been quite some time and we haven't really seen any sort of gamma indications of a gamma squeeze coming from that instrument. And then alternatively, there's also been an instrument called the CME futures, which underlies the BITL ETF. That future instrument has its own set of options that are listed on a highly regular exchange called

CME. And that also has not seen the same type of kind of dynamic that you would expect from a give a squeeze. So yeah, in reality, we all want, you know, Crypta to succeed. And we think the options market coming in for BITO and for Ibit actually will create a lot of, you know, bullish price action. We all want that. But in reality, you know, we haven't really seen that as other option products have emerged in the past. Okay. Yeah. And you're referencing, I think the tweet threat from Jeff Parker really was actually a publication of his memo, I guess. that caught fire on crypto Twitter. We can get more into that later, but just one other question about kind of the nuts and bolts of this. What is the timeline of this rollout? Because I think

there's still some approvals that need to happen. So when would you expect launch? Yeah, I think this is a little bit up in the air. And I don't have any sort of inside knowledge on this. But I know that obviously there's two other regulatory bodies that need to sign off. It's the OCC, which governs a lot of equity and ETF options. And there's the CFTC, which obviously governs anything related to commodities. I've spoken to a lot of other traders in the space. There's been in the past, sometimes a holdup even after the CFTC approves the options where the CFTC doesn't want to permit those options to be listed,

in particular, like for some smaller commodities markets. So it's kind of a way and see. I think it's clear that there's a lot of sponsors. for this product and it would be sort of arbitrary to allow BITO options and not bid options. So kind of expected to happen probably in the next couple of months and maybe even sooner in that. Okay. And where will they launch? So it'll be on, you know, there's a bunch of different stock option exchanges that exist. And generally when you're trading, let's say on your brokerage account as a retail investor or through, let's say, like,

Robin Hood, it'll route it through to the best, to the optimal exchange that has the best price, and that's just a function of like U.S. markets, equity markets regulation. It has to go to the best price, the NBBO. So it doesn't really matter. It's kind of transparent to most users, which exchange it trades on, but there's a handful of them that will all simultaneously list this option. Okay. And as you've mentioned, these types of options have been available historically. but would you expect the advent of the iBit options to change, like, who would be trading these types of options or what they would be doing with them? Yeah.

So there is one probably an interesting dynamic, right? And I'll highlight actually a couple of them, but the first one with respect to users, there's a type of product that generally gets issued when, you know, banks and other sort of issuers have access to a liquid ET. app market. Those types of products are called structured products. There's a very active structure products market in the United States. Something like $100 billion notional per year gets issued. These structured products are effectively a bond that's issued by some issuer. Could be like a bank, you know, like a Goldman Sachs or Morgan Stanley. And then they have inside of them some set of

options, right? And those options generally are short, meaning like it's a sale of options, which produces some premium and generates yield for the person buying the structured product. It's usually a structured note. So if we see some of this start to emerge on Bitcoin, there's already been precedents on this before. As I mentioned, there's already been options on the BITO, ETF, and people have structured it using CME options as well. But if it becomes much more liquid with Ibit, we would expect more issuance on these types

of structured notes, which would result in potentially lower volatility, right? because the implied vol as more supply hits the market on these options will come in. That's one very interesting dynamic that we kind of expect to see. The other one is that because there's already existing equity products that are proxies for Bitcoin, right, BITO is one. Coinbase stock is another one. Micro strategy stock is a third. There's a whole host of listed U.S. mining companies. All of these instruments, all these kind of stocks are typically used by investors to,

proxy Bitcoin, maybe because they don't necessarily have access or they don't want to touch the underlying commodity itself. So you could kind of see a compression, right, between these sort of instruments on proxies versus the underlying commodity once you can trade all of it in a single portfolio inside your brokerage account, because there will be some risk netting benefits. There will be some collateral netting benefits that will allow people to trade those spreads more efficiently. So in effect, you know, you might see some compression between voles that are very high, implied volatilities that are very high on these single-name equities like micro-strategy and the miners versus Bitcoin, the commodity itself.

All right. So in a moment, we're going to talk about the impact on the wider market, but first a quick word from the sponsors who make this show possible. Coinbase 1 is a membership with over 400,000 crypto traders worldwide. As a member, you get elevated perks such as zero trading fees, up to 5.6% APY on USDC, boosted staking rewards, and 24-7. priority support. Experience it free for 30 days with promo code unchained at coinbase.com slash one. FBT is an OmniChane BTC asset contributed by Mantle Network and Ant Alpha Global. Launched in early July, FBTC's TVL has already passed $125 million, making the fastest-going

BTC asset this summer. FBTC's points-inspired campaign, Sparkle, has officially started, with lucrative and sustainable yields, plus points and token airdrop from Babylon, Mantle's new token cook, and more. FBTC is the BTC solution you've been waiting for. Visit FBTC.com slash ongoing hyphen campaign today. Back to my conversation with Josh. Actually, one last quick question on just the Ibit. So I know that there are other ETF providers that have applied,

and I wondered when you thought those might be approved, like, I mean, aside from Black Rock. Yeah, I don't know. have this exact transparency into that. But I would expect, you know, just as with the original Spot TF launch, they'll probably time it so that it comes out around the same time without giving preference to one issue or another. All right. So as we've been talking about during the show, there's already, you know, a market for these different Bitcoin type options. And as you mentioned, I did notice so current aggregated open interest on Bitcoin options is at about 20 billion

trading volume in recent months was about $60 billion, but September looks like it'll be more about $40 billion. And I wondered how you thought the launch of the Ibit options would affect these other options that have been existing. Do you expect that there might be less interest in those or maybe just it expands the pie for everything? Yeah. Well, we think probably the biggest order will be the CME options because they're another instrument that's accessible to traditional market participants, right, hedge funds and dealers. So probably a lot of that demand will also manifest in the Ibit options and then actually, because there will be some arbitrage opportunity between those two things and there'll be accessible to the same set of people, it'll just

multiply the amount of volume on both instruments. We saw that same effect, you know, many years ago before, you know, you and I started trading, but with the gold, the gold ETF lodge, right, GLD and gold, you know, Comex futures and options. there's already a liquid market before the ETF came out on those instruments. And then the fact that the ETF came out created an arbitrage opportunity. I think talking to some traders that were kind of doing active in that time, it was maybe like a one or two ball spread between those two instruments for even a year or two after the launch. So there's going to be some good opportunities where people who have access to both sides can spread.

And then as you mentioned earlier, Deravit is very dominant right now. Now, it has about 80% market share. And I wondered how you thought the impact, the launch of these Ibit options would impact Deribit or just the existing. Yeah, it doesn't have to be Deribit specifically, but obviously the dominant player. Right, right. Deribit is the dominant player in these sort of offshore crypto-native venues. They are maybe 80% of the total volume.

And then the remainder is split between a number of venues, but including Finance and OKX. Yeah, I think there's always this fear, right, in the crypto-native community that when there's a launch of a more regulated product, that volumes will go away on the crypto-native venues. And I think history is shown that that's typically not the case. I mean, the first instance of that was when the CME launched their options market on the futures. Derivet actually continued pretty strong, right? It's still on the order of like 40 billion notion per month, like I said earlier, versus CME at something like three to four billion per month. So there's going to continuously be this marketplace where certain audiences can touch Deribit and certain audiences can touch CME and probably that same audience can touch the Ibit options.

But it's different users and there's always going to be this sort of, you know, different set of supply and demand touching those instruments. And so that might create that differential in terms of all spread and an arbitrage opportunity between those markets. and the beneficiaries will be firms, probably, you know, large proff trading firms like the Citadel's and the Jane Streets and the like, the names you're probably familiar with. That will be able to access both sides of the market that will benefit from that. All right. And then, of course, we have the world of options in Perps trading and Defi. And I was curious just what the landscape is there and then how you think the launch of these options, the I bet options will impact that world. Sure. So defy options, defy derivatives, these are sort of like protocols that have created the same type of instruments that you can trade on centralized exchanges. The issue, I think what we've seen, especially with, you know, defy or on-chain options is that there is much more demand for on-chain perpetual swaps, right? Like perpetual swaps are really the preferred instrument for retail investors in crypto to take leverage. And there's many reasons for that. There's many reasons why that's the case in crypto and not, let's say,

in equity markets, right? The biggest one of which is leverage or, you know, these sort of levered instruments on single name equities is a highly regulated product. You know, there's regulations on how much margin a broker can give their customer to take positions on stocks. But there's also, you know, a lot of regulations on creating futures and contract for differences on equities, U.S. equities. So that's why options are the preferred way for retail to trade on leverage in U.S. equities. And hence the rise of things like the Robin Hood Zero Data Exbury option market. In crypto, it's not the case because there aren't those regulations.

And there's obviously ways that U.S. retail investors can get access to perp markets. So because of that, the options market and especially the on-chain options market, has lagged in the professional spot market. Now, is that going to change? I think the way it changes is just a lot more influx of institutional users of on-chain options. So like the hedge funds, you know, macro hedge funds of the world and the dealers of the world and the banks of the world need to be able to be uncomfortable enough from a risk perspective, from a regulatory perspective, from a compliance and, you know, credit perspective,

to be able to touch these on-chain venues and deposit a lot of collateral on-chain, right? That's like the biggest thing is you have to have a lot of collateral on any derivative exchange to support like a large market-making business. And so I think that will happen. The question is when. Right now, if you look at the volumes on these on-chain protocols and order book, Dex's, it's minuscule, right, relative to what you see on Derbitt. Derbid might be $2 billion a day and these venues might be something like $20 to $30 million

dollars a day. So it's really a couple of whatever magnitude is off right now, but we're seeing some shift in that direction. And hopefully, you know, our firm is active on both sides of that. So we're hopeful that more firms will move that direction. Yeah. It's probably like a more futuristic thing. But, you know, as I've seen in my nine years in crypto, like things, you know, they do shift. So one other thing I saw was that you projected that the launch of Bitcoin ETF options would lead to an altcoin boom. Why do you think that? Right. So it takes a couple of kind of logical leaps here. But the first one is that you have to think about where financing and lending is coming. The lending market today in crypto, where is it coming

from? Before last cycle, it came from a lot of these lending platforms that were crypto-native, right? They were effectively taking customer deposits and then on lending. Sometimes in undersecured way to market participants, right? Hatch funds and our prop trading firms in crypto. And that has largely disappeared from the ecosystem for better or worse today. And so the major source of financing today is coming from financial sponsors that are largely like traditional lenders or private credit type of firms that are lending to more established platforms like prime brokers in crypto that then on board and distribute that credit to their end clients like hedge funds and venture firms and prop trading firms that use those prime brokers as a way to access

markets. So that's one shift in market structure that we've seen this cycle versus last cycle. If you think that ETFs and a lending market on the ETFs offered by those prime brokers that touch those ETFs is going to emerge. That means there's going to be a lot more credit in the ecosystem. And right now, ETFs, I don't think there's a ton of margin lending happening against the ETFs from, you know, the prime brokers, whether it's the banks or the retail brokers, like Fidelity, etc. But there could be.

And one catalyst for opening up that market would be the fact that you can price the risk of taking ETF collateral correctly. So how do you price that risk? You might need to understand the volatility of that asset. and how much of a gap risk it is on the downside, right? Like, you don't want to be a situation where you lend dollars against ETF collateral and you don't have protection if the price of Bitcoin goes down dramatically. So if you have put options on the ETF available, for instance, maybe you're more willing to extend loans against that ETF collateral.

It does require also an unlock on the regulatory side. Like, the regulators have to be okay with the prime brokers lending against the ETF collateral. But this is one piece of it is you need the option. So that's one idea. is that the options unlock maybe more lending against ETFs. And then if that's true, right, what does that be? That means there's going to be more capital flowing through the ecosystem. And what we saw last cycle is when you have more capital that's freely available against the majors,

that capital generally flows down the risk spectrum into less liquid and more volatile assets, right, the more speculative assets, whether it's meme coins or NFTs or, you know, speculative of venture bets, things like that. So that's kind of why I think there might be some move in that direction. The other, of course, natural consequence is if the cost of borrowing dollars in crypto goes down because the availability goes up, then the basis, which is the cost of holding a long futures position, the premium at which the futures trade relative to spot should compress because now you can just buy a spot more readily. You have more cash available. So yeah, those are two knock on effects, I guess, from the UTF options that we see.

All right. And I did see the SEC just a latest decision on applications for Ethereum ETF options from BlackRock and BitWise till November 10th. What do you think is the likelihood we'll get approval on those anytime soon? I mean, I think it's sort of inevitable, right? Because the same set of conditions exist on Ethereum that exists on Bitcoin. So it would be very hard to argue that there shouldn't be an options market on the ETH spot ATFs. So they like to kind of stagger these things and see how it plays out first. So I would expect

maybe a couple months of delay, but I think it's inevitable. Okay. I saw the CEO of Deribit, Luke Stryers, sent some notes to the block. And he said the end of month, September Bitcoin Options expiry is the second largest in open interest we currently have on Deribit. And he basically said that he thought that this expiry could cause over $5.8 billion to expiry. which would, quote, trigger significant market activity and volatility after the expiration. I wondered what you thought of those comments. Yeah, I mean, over time, the open interest on Bitcoin has grown dramatically, right, including non-durate. A lot of it is just the price of Bitcoin has appreciated, right?

Even if the same number of contracts is open, with price higher, you see more open interest. But also, it's a lot more users of these options. Like I said, the hedge funds that are actively trading these options, they're becoming more sophisticated, they're taking more complex positions, which are multi-leg, right? So even though, let's say you buy a call and you buy a call spread, call spreads are basically long, one strike, short another. The call spreads is like maybe a lower risk structure, but it's twice the open interest, right, because it's two different legs. So that's what you're kind of seeing is the growth in more sophisticated structures and ideas on options. Now, to your point on, will it create a lot of

volatility. I mean, historically... Yeah, well, by the way, one other thing that I forgot to add was that he's saying that things are skewing more bullish. And so he felt like, you know, kind of for October and beyond that we might see that kind of sentiment. For sure. Yeah. I mean, I think one thing we're seeing on hard ask is a lot of buyers of post-election calls and call spreads. So people are willing to make some sort of hedged bet, right, that the regulatory environment for crypto will relax after the November 5th elections. So, I mean, to speak to your point, I think there is usually around these expiry is some movement. And the movement is generally towards strikes where there's high degree of concentrated risk. So if a lot of people are participating in the $65,000 strike in

Bitcoin, there's sort of a magnetic pull in spot price to that strike because of the way that dealers are hedging their risk on that position. So generally, dealers are buying when the price is below 65 gay and then selling when it's above. That's called getting pinned to the strike. So, you know, generally that's the dynamic. You see now, I think what Luke is referring to post-expery, when all those options have expired, usually what, first of all, the thing that happens is a lot of people will roll those positions to the next monthly expiration. So in this case, it's October. Some of that has already happened in the last week or so of these options trading. But again, like what we would see generally is if there is some tendency to

move, if there's some impulse or some fundamental buying inflow coming into Bitcoin, generally that would impact after expiration for many reasons. One reason being that there's a lot of activity that goes into month end, which unfortunately the Friday, the last Friday of the month is usually where options expire, but that doesn't necessarily coincide with, you know, the end of the calendar month. And the calendar month is particularly important because it certainly marks like the new subscriptions to hedge funds and things like that, which would create inflows and buying pressure into the asset class. So yeah, there does tend to be movement post-experity in spot because of all these dynamics, because maybe a lot of the, you know, dealer hedging that had prevailed before

the expiration has sort of subsided post. So yeah, we expect some movement. All right. Well, I can't close out the episode without asking you a question about the upcoming presidential election. So how would you expect a Trump win to affect the crypto markets and how would you expect a Harris win to affect them? Right. So, you know, we were kind of looking at the implied pricing in these options. If you look at the curve, right, between pre-election falls, which expire in October versus post, which expire November, I think we were seeing earlier this week. I haven't checked recently. It was on the order of like 10, 11 percent move. So that's what the market expects Bitcoin to do on any sort of whether it's a surprise win or a surprise loss, it will move 11% in spot.

If it moves more, then that means the options we're underpricing it and you should have bought more of those November options effectively. I think that's like a pretty fair estimate, right? I think there is a meaningful and I also think that it generally takes more time than just the day of the election, really to price all of the potential effects, second order effects of the consequences of, you either Harris winning or Trump playing, because there are many things like we've already seen this with Harris where there's things that she just cannot express pre-election because of certain constituencies that she has, but potentially post-election she could be much more openly like pro-crypto or pro-innovation and have that agenda and drive that forward rather than now

where it could be, you know, one side of her, the left wing of her party might not appreciate that sort of sentiment now. So, yeah, I think that's, you know, I think that's a reasonable estimate, something like a 10% move going into an election. And it could be on the upside or the downside, it might be. Yeah, yeah, I guess we'll have to see. I was just thinking about how you were saying she can't go too far. And I was thinking about how it was funny. Like the crypto community was so excited about Trump.

And then when World Limited Financial gave out, they were like, well, that's too far. But anyway, okay, well, this has been a fabulous conversation. and thank you so much for explaining it all and unchained. Of course, yeah, thanks for having me. Really enjoyed it. Don't forget, next up is the weekly news recap. Today, presented by Wondercraft AI. Stick around for this week in crypto after this short break.

Pocod is the original and largest layer zero blockchain with over 2000 plus developers. The anticipated Pocodot 2.0 upgrade will be a massive accelerator for the ecosystem. Upgrading the infrastructure with eight times higher transaction throughput and twice as fast block times, tailored court time for the needs of every protocol, trustless bridges to multiple chains, and revise tokenomics with a token burn to reduce inflation. Perfect for GameFi and Defi to build, grow, and scale. Get your Web3 ideas to market fast. Think big, build bigger with Pocod.

Join the community at Pocodot.network slash ecosystem slash community. Did you know you can buy and sell crypto with tax benefits in an individual retirement account or IRA? ITrust Capital makes this possible. But what does this mean? When you buy crypto outside an IRA, like on an exchange, you face taxes on gains. But in a Roth IRA, gains would be tax-free. I-Trust Capital also has the lowest fees in the industry and 24-7 accessibility. Start now and maximize your retirement savings with I-Trust Capital.

Welcome to this week's crypto roundup. In today's recap, we cover Caroline Ellison's sentencing in the FTA. TX fraud case, BNI becoming the first bank to receive an SEC exemption for crypto custody, and Kamala Harris making her first remarks on crypto while outlining her economic policy. We'll also dive into SEC Chair Gary Gensler facing tough questions on crypto regulation, trust token and true coin settling with the SEC, and Polly Market seeking $50 million in funding amid election betting fever. Plus, we'll discuss PayPal's PYUSD market cap drop on Solana, Grayscale's Ethereum Trust experiencing large outflows and Sky Reconsidering Offboarding Rapped Bitcoin.

Thanks for tuning in to the weekly news recap. Let's begin. Caroline Ellison receives two-year prison sentence for role in FTX fraud. Caroline Ellison, former CEO of Alameda Research, has been sentenced to two years in prison for her involvement in the FTX fraud scheme. She also faces three years of supervised release and is required to pay $11.02 billion in restitution. The sentence was heavier than expected, as many anticipated she might avoid prison time altogether. Judge Lewis Kaplan acknowledged her significant cooperation with prosecutors, stating, I've never seen one quite like Ms. Ellison. Her testimony was instrumental in convicting FTX founder Sam Bankman-Fried, who received a 25-year sentence in March. Ellison expressed deep remorse during her sentencing, saying,

Not a day goes by when I don't think about all the people I've hurt. She admitted to helping mislead investors and misuse $8 billion in FTCS customer funds under Bankman-Fried's direction. Despite her cooperation, she is barred from ever working in finance again. BNY becomes first bank to receive SEC exemption from crypto custody rules. In what could be a major development for institutional cryptocurrency custody, BNY has been identified as the first bank to receive an exemption from the SEC's Staff Accounting Bulletin 121, first reported by unchained. During a public hearing in Wyoming, Chris Land, General Counsel to Senator Cynthia Lummis, confirmed that BNY had secured a variance from the rule, which typically requires

entities holding crypto to list it on their balance sheet as a liability. The exemption allows BNY to move forward in its digital asset custody business, a significant step for the banking giant. SEC Chair Gary Gensler said on Thursday that BNY's approved custody structure could be used beyond Bitcoin and Ether Exchange traded products. The bank's individual wallet structure, designed to protect customer assets in case of insolvency, could potentially be applied to a broader range of digital assets. Gensler stated, it didn't matter what the crypto was, indicating that the framework is flexible

for other digital currencies as well. BNY now has the green light to expand its crypto custody services while safeguarding client assets, and other banks could adopt similar structures. Gensler praised BNI for doing the legwork to ensure customer protection, noting this model could help avoid the pitfalls seen in past crypto platform failures like Celsius and FTAC. Kamala Harris makes first remarks on crypto. At a donor event in Manhattan on Sunday, Vice President Kamala Harris made her first public comments on cryptocurrency since launching her presidential campaign.

She stated that her administration would encourage innovative technologies like AI and digital assets while protecting consumers and investors, signaling cautious support for the crypto industry. While some, like Uniswop CEO Hayden Adams, saw this as a positive step, others found her remarks similar to past Biden-Harris statements on crypto. Moreover, Harris outlined her broader economic vision during a speech in Pittsburgh on Wednesday, emphasizing the importance of the U.S. maintaining dominance in emerging technologies, including blockchain. She stressed the need for America to lead in sectors like AI, blockchain, and quantum computing to ensure America, not China, wins the competition for the 21st century. Harris's newly released economic plan mentions

digital assets once, reiterating her earlier comments about fostering innovation while ensuring consumer protection. Gensler grilled on crypto regulation in congressional hearing. During a congressional oversight hearing on Tuesday, SEC Chair Gary Gensler faced intense questioning from Republican lawmakers about the agency's approach to regulating cryptocurrency. House Financial Services Committee Chair. Patrick McHenry criticized Gensler's reliance on regulation by enforcement and pointed to the lack of regulatory clarity as a key issue. McKenry warned that the United States will continue to fall behind Europe in technological innovation.

In response, Gensler defended the SEC's stance, referencing the Howie test to clarify how the agency determines whether digital assets are securities. Meanwhile, Democratic representative Maxine Waters used the hearing to propose bipartisan collaboration on passing a stable coin bill, emphasizing the need for strong consumer protections and federal oversight. McHenry expressed openness to further discussions on stable coins and broader digital asset regulation, hinting at the importance of his fit 21 bill. Trust token and true coin settle with SEC over TUSD misrepresentation. Trust token and Truecoin have reached a settlement with the SEC regarding allegations of misleading investors

about the reserves backing the True USD stable coin. The SEC claimed that by March 22, the reserves purportedly backing TUSD had been invested in a speculative fund leading to redemption issues later that year. Despite knowing these problems, both companies continue to misrepresent TUSD as fully backed by U.S. dollars. As part of the settlement, both Trust token and Truecoin, will pay $163,000 in penalties, with Truecoin also paying $340,000 in disgorgement. Neither company admitted nor denied the allegations. By September 2024, the SEC noted that 99% of TUSD's reserves were invested in the speculative fund, undermining its stability.

Polymarket seeks $50 million. Funding but faces uncertain future. Crypto-based prediction platform Polymarket is seeking $50 million in new funding as U.S. election-related bet surge, according to a fortune report. The startup is also considering launching its own token, which would allow users to validate real-world event outcomes. The move follows a successful year for Polly Market, in which it raised $70 million over two prior rounds, including from investors such as Peter Thiel's Founders Fund. Tornado Cash Developer Roman Storm to stand trial, Judge Rules. A New York judge has ruled that the criminal case against

Tornado Cash developer Roman Storm will proceed to trial. Storm faces charges of conspiracy to commit money laundering, operating an unlicensed money transmitting business, and violating the International Emergency Powers Act. These charges are tied to his work on Tornado Cash, a privacy mixer allegedly used to launder over $1 billion, including funds from North Korea's Lazarus Group. Storm has pleaded not guilty,

arguing that he only wrote the code for tornado cash and is not responsible for any illegal activities. If convicted, Storm faces up to 45 years, in prison. The trial is set to begin on December 2nd. However, concerns loom over Polymarkets future post-election. In August, nearly 80% of its $472 million trading volume was tied to election bets. Analysts predict that once the November 5th election ends, trading volume could drop significantly. Despite this, some experts believe Polymarket could retain users for non-election bets, but competition from new entrants like DYDX and Limitless adds further uncertainty to

polymarket's long-term success. PayPal's PYUSD stablecoin sees sharp decline on Solana amid reduced incentives. PayPal's stable coin, PYUSD, has experienced a significant market cap decline on the Solana blockchain, falling by 42% over the past month. From its peak, PYUSD saw its market cap drop from $663 million to $368 million, reducing its share of Salana's stable coin market to 9%. This sharp decline follows PayPal's reduction of high-yield incentives, which had driven PYUSD's early growth on DFI platforms. As these incentives diminished, user interest waned, reflecting a broader trend in decentralized finance, where users often chase the highest returns and move on quickly to the next investment. Grayscale's Ethereum Trust sees largest single-day outflow since July.

Gray Scales-Etherium Trust recorded its largest single-day outflow since the launch of Spot Ether ETFs, with 80.6 million exiting the fund on Monday. The sharp outflow, surpassing the previous nine days combined, coincided with a recent 20% rally in Ether's price, which hit $20,700, before recently settling at around $20,600. Following Monday's significant outflows, spot-Eth ETFs bounced back on Tuesday with $62.5 million in net inflows, marking the third highest daily inflow so far. BlackRock led the charge, contributing $59.3 million. On Wednesday, they also had a positive inflows of $43.2 million. In related news, the SEC delayed its decision on allowing options trading for BlackRock's Ether ETFs, after

recently approving similar options for Bitcoin ETFs. Sky reconsiders offboarding, wrapped Bitcoin after talks with BitGo CEO. Sky, formerly Maker Dow, is reconsidering its decision to off-board wrapped Bitcoin, WBT, as collateral, after discussions with BitGo CEO, Mike Belchie. Concerns had been raised about Tron founder Justin Sun's involvement in WBT custody, especially given the $200 million in loans tied to WBT on the platform. However, Belchie clarified that Sun would not have control over key management practices, easing concerns. B.A. Labs, a key Sky Advisor, now recommends pausing the off-boarding process, citing reduced exposure to WBOR. BTC and a more acceptable risk level.

And that's all. Thanks so much for joining us today. If you enjoyed this recap, go to unchained crypto.substack.com. That is unchained crypto.substack.com and sign up for our free newsletter so that you can stay up to date with the latest in crypto. Unchained is produced by Laura Shin with help from Matt Pilchard, Juan Aronovich, Megan Gavis, Pam Ajumdar, and Margaret Correa. The weekly recap was 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 Noel Atchison. Follow the CoinDesk Podcast Network for some of the best shows in crypto.