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More investment managers are trading digital assets as interest in cryptocurrencies continues to grow. AIMA’s Global Crypto Report, released over the summer, showed that around 20% of hedge funds are now investing in the space.

As a fund manager, protecting intellectual property, the complex algorithms, systems and data that allow them to generate returns, is paramount. That is why cybersecurity is an important consideration for both traditional managers moving into the space and newer startup funds.

George Ralph, global managing director of cybersecurity firm RFA, has witnessed a large uptick in crypto clients in the U.K. looking for security and infrastructure solutions.

Ralph says the three biggest challenges that traditional funds cited when looking at a potential move into the crypto space were “regulatory uncertainty, reputational risk and lack of infrastructure.’’

Read more: Are Cryptocurrencies Secure? Yes and No – Here’s Why

Exploits remain common in the digital assets space, especially in the more experimental realm of decentralized finance (DeFi).

In August, more than $600 million was stolen in one of the biggest crypto heists to date. Hackers were able to exploit a vulnerability in Poly Network, a decentralized finance platform that allows different blockchains to connect to work together.

In an unexpected twist, the hacker responsible returned a large majority of the stolen funds after experts and businesses said they would track their activity on the blockchain. Mt. Gox, the world’s largest bitcoin exchange at the time, filed for bankruptcy in March 2014 after hackers stole $460 million worth of crypto.

“Simple and secure storage solutions are urgently needed for the more than 221 million crypto users around the world who are targets for fraud and theft,” according to Jon Wilk, CEO of CompoSecure.

“More than $8 billion in crypto has been hacked or stolen in 2021 thus far, doubling the previous year, including examples of crypto exchanges being hacked, personal devices being compromised, or usernames and passwords being phished that were part of these growing losses,” Wilk said.

Read more: The Poly Hack and Crypto’s Trust Issues

With regards to crypto fund launches, the key thing in terms of threats is event-driven, there is a huge focus on insider threats, said RFA’s Ralph, and this has been exacerbated by the move to work from home following the COVID-19 outbreak.

Investors looking to launch funds in the post-COVID era are having to hire people they have never met before; conducting checks on potential new hires is harder in this current paradigm, Ralph said.

Peter Habermacher, CEO of Aaro Capital, says the “key targets for criminals are usually bank accounts or the assets of a fund. However, leakage of confidential information, intellectual property and personal data can be equally harmful and the issues in this regard can sometimes be internal.”

But not all that’s new is without precedent.

“Crypto asset funds are like hedge funds in the 1990s”, said Habermacher. “The market is dominated by startup managers who are operationally weaker than their established counterparts in traditional asset management and, as such, they often do not have the necessary cybersecurity procedures in place to completely satisfy institutional due-diligence processes.”

More needs to be done on the regulatory side, Habermacher said, to ensure that “crypto service providers such as exchanges and custodians are properly regulated and adhere to minimum security and process standards.”

Crypto criminals stole $1.9 billion in 2020, according to a report from blockchain sleuthing firm Ciphertrace, down from $4.5 billion in 2019.

NYDIG, the New York-based crypto company, has acquired British payments startup Bottlepay, according to people familiar with the matter.

NYDIG will pay for the company in shares, and the deal is worth between $280 to 300 million (equivalent to 3% of NYDIG’s shares). The acquisition closed earlier this week.

A spokesperson for NYDIG declined to comment when reached.

Founded in 2019 and based in Newcastle upon Tyne, England, Bottlepay facilitates instant payments in a range of currencies, including bitcoin. The platform uses the Lightning Network – a bitcoin-centric protocol that aims to facilitate faster payments.

British billionaire Alan Howard is Bottlepay’s largest shareholder. He led an £11 million investment in Bottlepay in February 2021, alongside NYDIG and FinTech Collective, the venture capital firm. That round valued the company at £51 million.

Howard seeded Bottlepay together with Chris Tuohy, a director and investor in the startup who was formerly considered a “star trader” at Tudor Investment Corporation, the investment firm founded by billionaire hedge fund manager Paul Tudor Jones. 

NYDIG helps institutions expand into crypto with a range of custody and trading tools. The company has raised $300 million across two rounds this year alone from investors including Morgan Stanley, New York Life and Soros Fund Management. Morgan Stanley, JPMorgan and Wells Fargo have all partnered with the business in order to roll out bitcoin investment products of their own for clients.

In April, NYDIG acquired Arctos Capital, a commercial lender providing financial products to bitcoin holders, investors and miners. Earlier in the year, it acquired Digital Assets Data, an analytics firm.

Howard, the former CEO of the hedge fund Brevan Howard, has made a large number of bets on crypto infrastructure startups this year. His investments include the crypto custodians Copper and Komainu; CoinShares, the asset manager; and the crypto lender Ledn.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Neither ERC20 nor ERC1400 is enough for today’s capital markets – but Polymesh offers a workaround.

Security tokens are on the rise. According to STOMarket.com, well over 100 tokens compete for attention from U.S. investors, with a combined market cap exceeding $1.1 billion. Such widely held names as Apple, Tesla and Google offer tokenized versions of their stock. But still, that could be an order-of-magnitude undercount.

“There are far more private and far fewer exchange-traded security tokens,” says Graeme Moore, head of tokenization for Polymath, a blockchain company that develops tools for digital securities. “The real figure is more like $5 billion to $10 billion.”

This poses a multibillion dollar problem that continues to grow exponentially: regulatory compliance. Because of regulatory requirements, not everyone who wants to raise capital in the U.S. can do so. Decentralized crypto exchanges are banned in the U.S., of course, but so are other financial instruments legal in other jurisdictions, like contracts for difference and off-exchange currency futures. That’s because know-your-client, anti-money laundering and other public policy requirements are at odds with blockchain’s pseudonymous nature.

So those who want to raise capital via crypto in the U.S. have the choice of a) waiting for Washington’s financial regulators and Wall Street’s self-regulators to catch up to the technology; b) finding a way to map the technology to the enforcers’ current requirements; or c) facing serious jail time.

Moore predicts most digital securities issuers will select the second option, which is why his company provides a purpose-built chain on a new standard that conforms to both technical and legal requirements.

Securing securities

Polymath is the company behind Polymesh, an institutional-grade permissioned blockchain built specifically for regulated assets. Moore calls it “the first of its kind, designed from the core to solve any blockchain-specific issues around compliance, risk and security for financial institutions.”

Polymesh has garnered the support of 14 major regulated financial institutions acting as permissioned node operators on the network, with its native token POLYX recognized as a utility token by the Swiss Financial Market Supervisory Authority (FINMA), suggesting it could be a compliance-focused blockchain with a use case that moves beyond crypto and into legacy securities.

Permissioned blockchains are, of course, nothing new. JPMorgan, Citigroup, Wells Fargo and dozens of other financial institutions already use them, and by all accounts, they function perfectly well as internal, proprietary distributed ledgers. But that doesn’t mean they can support securities that meet the U.S. Securities and Exchange Commission’s Howey Test. While stablecoins, utility tokens and true cryptocurrencies can make the case – successfully or not – that they’re not securities, security tokens are absolutely issued with that intention. There is no fig leaf. They are sold for the purpose of raising capital.

Most digital assets comply with ERC20, and while it remains a perfectly fine technical standard, it doesn’t fulfill the needs of the investor community. It has no transfer restrictions, and so regulators have no idea if an ERC20 token is being bought by a day trader in Tampa, a drug lord in Myanmar or a special operations force soldier in North Korea.

That’s why ERC1400 was developed: to promote regulatory compliance related to transfers, documentation, notification and fungibility. Unlike tokens minted under ERC20, an ERC1400 token can account for lockup periods, volume limits and reissues of lost or stolen assets. ERC1400 was purpose-built on Ethereum for security tokens, but it didn’t go as far as the U.S.-based investor community needed it to go. Polymesh took off from there.

Polymesh offers five advantages to issuers. These map to the five requirements Polymath believes must be met before capital markets participants adopt blockchain technology broadly:

1. Governance: Polymesh is built using the Substrate Framework so that investors can rely on seamless upgrades without the disruption – and potential loss of value – from hard forks.
2. Identity: Customer due diligence ensures all actors on the chain are verified. A single identity on the chain is created for each real-world individual or organization, and attestations can be attached to this identity as needed. This modular two-stage approach to identity verification allows for efficient onboarding as well as for checks required for specific assets.
3. Compliance: Once the issuer sets preferences and restrictions, Polymath’s technology automates its enforcement efficiently – and cost effectively – at scale.
4. Confidentiality: Because Polymesh is intended for securities, it makes it possible to transfer and hold assets confidentially, while still automating compliance checks and cap table updates.
5. Settlement: Polymesh reduces delivery failure without requiring pre-funding and can provide deterministic transaction finality.

Future stock

Polymath expects Polymesh’s mainnet to go live in early November, following the formation of the Switzerland-based Polymesh Association, a not-for-profit promoting and developing the protocol and ecosystem. When it goes live, Polymesh will enable the creation of security tokens on purpose-built infrastructure for capital markets.

In a later release, confidentiality should be enhanced by MERCAT, a new patent-pending protocol for securely managing assets in a confidential and auditable way. MERCAT uses a hybrid design approach that combines zero-knowledge proofs with restrictions enforced by trusted mediators, giving issuers the option to make transactions while keeping their security token confidential.

While the market clearly exists already, Moore is braced for a major expansion. He predicts it will continue to grow in the short run due to the growth in the private placement market. Security tokens are already suited to debt and equity issuances governed by the Securities Exchange Act’s regulations A, D and CF. Polymesh’s cost efficiency would be a major driver, considering the level of expense startups now must bear for compliance.

“Going from $1 million [in origination costs down] to a hundred bucks – that’s a really big thing,” Moore says, adding that the future he sees for security tokens is even brighter, as major financial institutions realize the savings potential for their underwriting operations. “The banks will bring in the next $100 billion,” he says.

A newly launched crypto project that raised $60 million overnight appears to have lost the funds in what may have been a phishing attack.

The project was called AnubisDAO and it was promoted as a fork of OlympusDAO — a cryptocurrency backed by the assets in its treasury. AnubisDAO was first announced on October 28 with the launch of a Discord server and a Twitter account, which ended up only making a few tweets. The supposed fork was themed around Anubis, an egyptian god of death that has a dog’s head, a branding similar to other dog-themed memecoins.

Despite the lack of website, investors plowed into the token sale, putting $60 million in ETH into it.

The token sale was supposed to continue, with more investors putting in ETH and receiving anubis tokens (ANKH) in return, for a 24 hour period.

But at 11:58 UTC — around 20 hours into the sale — the liquidity in the pool (which enables investors to buy and sell the tokens) was removed. The $60 million in ETH that had been put into the token sale so far was then sent to a different address.

That the liquidity was removed at all was a bad sign, and it getting removed before the sale ended was an even worse sign — both pointing toward either a rug pull (where the team disappears with the money) or that the money was stolen by another party in some kind of exploit.

Since the money was taken, the price of the ANKH token has effectively gone to zero because there’s no liquidity to sell into. The chart below was originally on the Copper website — where the token sale took place — but has since been removed.

Twitter sleuths found a series of transactions that connected the wallet that received the funds to a Twitter account named @Beerus, which have been confirmed by The Block’s researchers. Moments ago, this Twitter account was deleted.

Since then the owner of the Twitter account has claimed — under an alternative account — that they may have fallen foul to a phishing attack. They shared a screenshot of an email from someone pretending to be crypto investor 0xSisyphus that contained an attachment, which could have contained malicious code.

Investors who bought into the token sale have been dismayed by the events. 0xSisyphus tweeted that he was putting out a 1,000 ETH ($4.3 million) bounty to find out who owned the address that received the funds. The project’s Discord channel has, as per usual in these sorts of situations, fallen into chaos.

For more breaking stories like this, make sure to follow The Block on Twitter.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

HONG KONG — OCTOBER 29th, 2021 — Huobi Technology Holdings Limited (Huobi Tech, stock code: 1611), a leading virtual asset services platform, participated in the 2nd Annual Private Wealth Asia Forum in Hong Kong. Jenny Lau and Gillian Wu, representatives of Huobi Tech, spoke during a session and roundtable discussion about the role of virtual assets as an alternative asset class and how they are becoming important investment tools as Bitcoin, Ethereum, and other cryptocurrencies enter the mainstream market. 

The 2nd Annual Private Wealth Asia Forum in Hong Kong brought together hundreds of executives to discuss capital allocations into all sorts of investment vehicles. The program was developed to meet the needs of private wealth investors. Attendees were primarily C-level executives from Asia’s private client and wealth management industry.

During the first session titled ‘How to Best Take Advantage of Opportunistic Alternative Investments,’ panelists discussed the current macro-environmental issues within the wealth management space, including regulation, technological development, changes in macroeconomic demographics, economic policies, and more amid the global market volatility caused by COVID-19. By 2025, the pandemic will have cost the world between USD16 trillion and USD35 trillion, according to a new report from McKinsey & Company. 

When addressing the question of whether alternative asset investments, including virtual assets, add value to investors’ portfolios, Gillian Wu, CEO of Huobi Asset Management, which is a subsidiary of Huobi Tech, discussed the risk-return aspects of assets and how investment portfolios consider the cumulative impact of assets to evaluate the risks and returns of the broader portfolio. Cryptocurrencies like Bitcoin have almost no correlation to other asset classes, and therefore provide clear diversification benefits. According to RIA Digital Asset Council reports, one percent of Bitcoin exposure will not reduce the fixed return of the overall return on investment (ROI) but provide a higher risk-adjusted return. In other words, virtual assets are becoming important mainstream investment tools. 

This message was also underscored during a roundtable discussion hosted by Huobi Tech titled ‘Virtual Assets as an Alternative Asset Class’. During the roundtable, some investors voiced their optimism for virtual assets but also shared concerns about compliance and safety. Jenny Lau, Head of Hong Kong office, Huobi Trust Hong Kong which is another subsidiary of Huobi Tech, acknowledged the validity of these concerns and cited the importance of licensed virtual asset custodians. Virtual asset custodians can address risk via risk control measures and lower the threshold for investors to enter the virtual asset space. Furthermore, custodians can customize their custody solutions to meet the different needs of their investors.

To wrap up the discussion, Jenny Lau introduced Huobi Trust Hong Kong, a one-stop virtual asset service platform that aims to provide asset custody, wealth management, private customization, family trust services, and more to clients who need secure or risk-isolated asset storage. Since its incorporation as a registered trust company in Hong Kong in April 2021 , the assets under custody of Huobi Trust Hong Kong has exceeded more than USD2 billion as of the end of September 2021. 

To find out more about Huobi Technology: https://huobitech.com 

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Australia’s securities regulator has determined that bitcoin and ether are likely to satisfy its criteria as appropriate underlying assets for exchange-traded products (ETPs).

• The Australian Securities and Investments Commission (ASIC) published on Friday its guidance for providers wishing to offer ETPs linked to the performance of cryptocurrency, following a request from market participants for feedback in June.
• For crypto to be a permissible asset for to back an ETP or other structured product, it must meet five criteria: A high level of institutional support and acceptance; reputable and experienced service providers to support the products; a mature spot market; regulated futures markets for trading derivatives and robust and transparent pricing mechanisms.
• On this basis, bitcoin and ether “appear likely to satisfy all five factors … to determine appropriate underlying assets for an ETP,” the ASIC said.
• An exchanged-traded fund (ETF) offering exposure to crypto-focused companies provided by ETF manager BetaShares is expecting to start trading in Australia in the near future. The ASIC findings suggest it could be followed by products offering more direct exposure to crypto in the months ahead.

Read more: Bitcoin ETFs Aren’t New. Here’s How They’ve Fared Outside the US

A CryptoPunk was sold for 124,457 ETH ($532 million) yesterday, making it the largest CryptoPunk sale in history — by a huge margin. 

Only it was effectively a massive sleight of hand.

According to blockchain records, the CryptoPunk owner actually purchased the Punk from themselves. This in itself may not be new to NFTs; there has long been suspicion that accounts have purchased their own NFTs at higher and higher prices to make collections look more valuable. But there’s never been a wash trade of this magnitude before.

The key issue is the sheer amount of funding. If someone were to wash trade an NFT for 1 ETH, they would likely be able to afford it with their own money. But in this case, the owner of the NFT needed access to $532 million to buy it — not such an easy ask.

The CryptoPunk owner managed to access this kind of money by using a flash loan. These are large loans that are used to perform some function and repaid, all in the same transaction in the same block. If the money isn’t returned to the lender within the same block, the transaction fails and the money was never borrowed to begin with. As a result, lenders are comfortable lending out much greater amounts of money with less collateral. 

So in this case, the owner of the CryptoPunk took out a flash loan for more than $532 million, used the funds to purchase the CryptoPunk and then sent the money back to the lender — all within the same transaction. This meant they made the sale happen without needing to stump up the funds. 

Since this happened, multiple other people have used similar tactics. Someone used a flash loan to bid 4,206 ETH ($18.2 million) on Punk 5362 and another bid 20,400 ETH ($88.5 million) on a range of CryptoPunks.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The price of SQUID, a play-to-earn crypto token, has shot up 35,000% since Oct. 26, according to CoinMarketCap data.

• The token buys entry to an online game inspired by hit Korean Netflix show Squid Game, one of the streaming platform’s most successful shows of all time, according to the white paper.
• SQUID was at $0.012 on Oct. 26, and is quoted above $4.20 on CoinMarketCap at the time of writing, up more than 270% in 24 hours.
• In the online game, as in the show, competitors take part in six contests, with players eliminated in each round. An fee is required to enter each game, starting at SQUID 456 for the first and increasing as the tournament progresses. The majority of the fees are pooled together to make up the winner’s reward, while 10% of the funds go to the development team.
• Unlike the 456 debt-ridden players in the TV show, “everyone here in crypto world can participate,” by buying the token the white paper said. On the game’s website, the “Play” button says it’s “COMING SOON.”
• Speculators looking to trade the token, however, may face challenges. CoinMarketCap warns that users have been unable to sell the token on decentralized exchange PancakeSwap.
• Play-to-earn gaming has surged in popularity in recent months, with Axie Infinity among the most well-known. In some countries players have been able to earn more than in their regular jobs, to the extent that local authorities are said to be looking to tax player’s revenue.

The amount of ether burned on a daily basis has set new records for two days in a row with over 30,000 ETH burned since Wednesday, data shows.

The Block’s Data Dashboard shows that about 14,820 ETH were burned on October 27 as a result of the EIP-1559 proposal that went effective in early August. 

That set a new record at the time only to be surpassed the next day with over 16,800 ETH burned on Thursday. That added the total amount of burned ether to over 668,000 ETH as of press time, which would have been worth around $3 billion.

The upgrade changed Ethereum’s monetary policy by burning part of the transaction fees in every new block in an effort to make the whole fee system more reliable and easier to predict. (Here’s a primer on how Ethereum fees now work.)

As a result, the daily net emission of ether has gone negative for two days in a row again. The first time ether’s daily net emission trended negative since the activation of the EIP-1559 was on September 4 at -333 ETH.

But the negative emission has now extended to -1,500 and -3,440 ETH on Wednesday and Thursday, respectively. The Block’s chart shows the Ethereum’s daily net issuance has been on a disinflationary trend overall since the activation of EIP-1559.

Meanwhile, ether’s price has soared to a new all-time high just above $4,400 on Thursday night Eastern Time, pushing its total market capitalization to cross the half a trillion dollar mark at $516 billion.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Venture capital firm CMCC Global is targeting $300 million worth of investments for its latest crypto fund with the backing of investors, such as billionaire Richard Li and Gemini co-founders, the Winklevoss twins.

• Richard Li, who backed CMCC’s previous crypto token fund, will roll over to the latest fund along with other existing investors, Bloomberg reported on Friday.
• Gemini co-founders Cameron and Tyler Winklevoss are said to be investors in the new fund.
• CMCC Global, which was founded in 2016, was an early investor in the Solana blockchain having invested $1 million in a private token sale in 2018. The VC has also backed other blockchain projects like Cosmos and Terra.
• CMCC co-founder Charlie Morris said that the firm plans to assign part of its latest fund to areas, such as decentralized finance (DeFi) and non-fungible tokens (NFTs).

Read more: Hong Kong Blockchain VC Hires Former NEO Exec to Launch Shanghai Office