Quick Take

• The first bitcoin-based ETFs have finally launched in the U.S. — but they are tied to bitcoin futures, not bitcoin itself. 
• Why are regulators happy to allow futures ETFs but not bitcoin spot ETFs? And what does this mean for issuers still hoping to launch spot ETFs?

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Robinhood (HOOD) shares were falling 7% in after-hours trading Tuesday after the zero-commission trading platform missed badly on revenue expectations as its cryptocurrency revenue fell sharply from the second quarter’s record high.

• Robinhood said its crypto revenues fell to just $51 million in the third quarter, down from a record $233 million in the second quarter. The company said the reduced crypto trading activity led to significantly fewer new funded accounts and lower revenue in the quarter as compared to the second quarter.
• Total revenue for the quarter was $365 million, short of analyst estimates of $437.1 million, according to FactSet. The company reported an adjusted net loss of $2.06 per share, versus analyst estimates of a loss of $0.67.
• Robinhood said that over one million customers have signed up for the waiting list for its crypto wallet, which is one of its “most heavily requested products.”
• The company also launched recurring crypto investments, allowing customers to automatically buy crypto, commission-free, on a schedule of their choice.

Robinhood, the crypto and equities trading platform, released its earnings for the third quarter on Tuesday, showing a decline in interest in the crypto market during that period.

The firm said its total net revenues increased 35% to $365 million, while other financials included a loss of $1.32 billion. Analyst estimates had ranged around $430 million for the period. 

“This quarter was about developing more products and services for our customers, including crypto wallets,” said Vlad Tenev, CEO and co-founder of Robinhood. “More than one million people have joined our crypto wallets waitlist to date. With 24/7 live phone support, we believe that Robinhood is becoming the most trusted and intuitive platform for retail and crypto investors. And looking ahead, we’re committed to delivering tax-advantaged retirement accounts to help everyone invest for the long term.”

Robinhood, which makes its money from offloading customer orders to large trading firms, saw transaction-based revenues increase 32% to $267 million compared to Q3 2020.

As for its crypto operation, Robinhood said its revenues for the business came in at $51 million — an increase of 860% compared to 2020.

Still, interest in crypto compared to the second quarter of 2021 was lower. 

“Crypto activity declined from record highs in the prior quarter, leading to considerably fewer new funded accounts, a slight decline in Net Cumulative Funded Accounts, and lower revenue in the third quarter of 2021 compared with the second quarter of 2021,” the firm said. 

In the second quarter, the firm’s earnings showed crypto’s share of the company’s total revenue increased from 2% to 41%. Between Q2 2020 and Q2 2021, transaction-based revenues from cryptocurrency trading increased by 4,282%.

The firm has been expanding its suite of products, announcing the launch of a wallet feature that would allow users to move their crypto outside of the Robinhood platform. Robinhood said Tuesday that “[m]ore than one million people have joined our crypto wallets waitlist to date.”

© 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 Graph, a service that organizes data on blockchains to make the data easy to find, began testing its service Tuesday on the NEAR blockchain, marking the first time the product has run on a blockchain that’s not compatible with the Ethereum blockchain.

The Graph is used by developers to access data such as prices and user information. The protocol is live on 25 blockchain networks.

Tegan Kline, a co-founder of The Graph developer Edge & Node, told CoinDesk in an interview that it took “many months” to complete the integration, as The Graph has previously expanded only to blockchains that are compatible with the Ethereum blockchain.

The protocol managed to make the migration because of a grant from The Graph Foundation to blockchain data company StreamingFast, which became a core contributor to The Graph earlier in the year. The foundation distributes grants to projects that are building on The Graph.

Kline also said that developers can expect to find The Graph on other blockchains that aren’t compatible with Ethereum in the coming months, as The Graph Foundation will continue to offer grants to help the service expand.

“Wherever developers go, The Graph will be,” she added.

Read more: Near Protocol Offers $800M in Grants in Bid for DeFi Mindshare

Meanwhile, the integration comes at an exciting time for NEAR. On Monday, the NEAR Foundation announced the launch of an $800 million grants program in collaboration with Proximity Labs, a U.K.-based technology company.

The last time the Bitcoin network locked in a major upgrade, in July 2017, the bitcoin cryptocurrency’s price jumped almost 50% through Aug. 23, when the changes went live.

Now, as the original blockchain network prepares for its next big upgrade in November, known as Taproot, few investors are expecting a price reaction anywhere near that scale. BTC’s price has already doubled this year and hit a new all-time high near $67,000 last week. While further gains are possible, Taproot alone likely won’t be the catalyst.

“The Taproot upgrade will have minimal impact on bitcoin’s price,” said Edward Moya, senior market analyst for the online foreign-exchange broker Oanda.

Set to go into effect on Nov. 16, the Taproot upgrade is designed to increase privacy protections on some transactions over the network through an innovation known as “Schnorr signatures.” The upgrade also will allow for more lightweight “smart contracts” – essentially programs stored on a blockchain that run when certain conditions are met. Smart contracts have been a key feature of the rival Ethereum network, powering fast growth in decentralized finance (DeFi) applications that aim to automate many functions of banks and trading firms.

“This is a revolutionary moment for Bitcoin,” said Don Guo, CEO of Broctagon Fintech Group.

Yet, the episode is serving to highlight a key difference in Bitcoin’s approach to network improvements versus competing blockchains where upgrades and tweaks are far more common. Ethereum, the No. 2 blockchain, just off the heels of its London hard fork in August and now pushing forward with its “Ethereum 2.0″ overhaul expected next year, has seen the price of ether, its native cryptocurrency, quintuple this year.

Is Taproot good for bitcoin?

Backers of Bitcoin say the slow-going approach simply shows how methodical and cautious its developers are – wary of doing anything that might hurt a revolutionary blockchain network that has defied most expectations since its introduction 12 years ago.

But some investors have grown more skeptical of the Bitcoin network’s ability to adapt and expand, worried that its first-mover advantage might be eroding. Given the rapid pace of development in the blockchain industry, four years without a major upgrade can seem like eons.

“Some may argue that bitcoin’s lack of upgrades shows its technical superiority over Ethereum,” said Denis Vinokourov, head of research at Synergia Capital.

He said the Taproot implementation is likely to have a limited impact on the cryptocurrency’s price because the upgrade has been widely expected for years.

“The risk is the market will see it as being something that is already available elsewhere,” said Vinokourov.

Adam Back, CEO of Blockstream, and a protocol researcher, told CoinDesk in an interview that despite the infrequency of upgrades, hordes of developers are constantly working on network improvements in the background. Developers have been preparing for the Taproot upgrade since 2018, the year after the Segregated Witness, or “SegWit,” upgrade went through.

“This is a false story that people make, that Bitcoin is not developing very fast,” Back said. “People mistake the lengthy rigorous quality assurance as a lack of change. There is a pipeline of change and it’s large, but it has a slow release schedule because it needs testing.”

According to Back, “People get impatient because it has been a year since they heard about it in the press.”

“Competing coins do a lot of futuristic marketing about what might happen in five years,” he said.

Only four years ago …

If history were a guide, the upgrade could usher in big gains.

The 2017 upgrade that introduced SegWit improved Bitcoin’s scalability by “segregating” specific data from individual transactions, effectively making them smaller. This step allowed more transactions to be processed without increasing the size of individual data blocks.

Another key feature of the 2017 upgrade was the enabling of the Lightning Network, a secondary layer built on top of the Bitcoin base layer, which facilitates near-instantaneous, free and more private bitcoin transactions. The development of the Lightning Network since 2017 is what allowed it to become a linchpin of El Salvador’s push to make bitcoin legal tender alongside the U.S. dollar.

SegWit was approved on July 23. A month later, when the upgrade went live, the price of bitcoin had climbed 50%, to a then-astounding $4,247 on Aug. 23, 2017.

But with bitcoin now trading above $60,000, some investors think the cryptocurrency’s price rise might look – well, tapped out.

“There might be a limit to how much more upside you can really get from bitcoin,” Daniel Cawrey, COO at Cypherpunk Holdings Inc., a digital-asset investment firm. (Cawrey is a former CoinDesk reporter.)

“If you’re an institutional investor, it already looks like you’ve missed the boat,” said Cawrey. This is why investors are looking to Ethereum and a host of competing blockchains known as “Eth killers,” according to Cawrey.

What will Taproot enable?

Anton Chaschin, CEO of Bitfrost.io, a blockchain middleware platform, said that the introduction of smart contracts could actually add to interest from institutional investors, given the potential for creating new products and applications.

The new privacy enhancements, on the other hand, might invite closer scrutiny from governments concerned about preventing tax evasion, money laundering and any illicit activities.

“While these can be attractive to private transactions, this may also arouse the suspicion of regulators,” Chaschin said. “There’s a lot of talk of regulations already, and this might be the last straw that makes regulators step in more aggressively.”

Cryptocurrency investors fretted over China’s crackdown on bitcoin miners in September. Concerns over the network’s energy usage and potential environmental harms remain paramount for many traditional investors.

It might be hard for investors to get much more bullish on bitcoin than they already are, with the price now having fully recovered all lost ground from the June low around $28,600. The long-awaited rollout of new U.S. exchange-traded funds (ETFs) focused on bitcoin futures started last week, with the ProShares Bitcoin Strategy ETF’s assets topping $1 billion in just two days. The Valkyrie Bitcoin Strategy ETF launched Friday. VanEck’s ETF is set to launch Tuesday.

But according to blockchain analysis firm IntoTheBlock, the Taproot upgrade might demonstrate that Bitcoin is a technology that can be adapted and upgraded without any impact on its reliability or uptime, while maintaining its investing thesis as a store of value.

“We expect that investors will receive these upgrades positively, and the price will continue increasing in the long term,” said Juan Pellicer, research analyst at IntoTheBlock.

Said Broctagon’s Guo: “With a successful technical implementation followed by increasing adoption, there is no reason why the price should not follow.”

GameStop is looking to build an Ethereum-based Web 3 arm, according to a job listing posted by the company nine hours ago.

The retailer said it’s looking for someone with “experience with Ethereum, NFTs [non-fungible tokens] and blockchain based gaming platforms” for its “Head of Web3 Gaming” role.

The job post outlines a metaverse-esque future for the gaming industry, where “games are places you’ll go” and “blockchains will power the commerce beneath.”

“Integrations with different blockchains and Ethereum layer 2 environments” was listed as one of the role’s responsibilities.

Layer 2 is a companion system designed to help a cryptocurrency system handle a larger volume of data, typically with the goal of processing more payments, faster.

Read more: GameStop Is Hiring for New NFT Platform on Ethereum

In May, the company created a page teasing an in-house NFT marketplace, which the company still appears to be hiring for.

An address on the site showed that GameStop had already created an Ethereum-based ERC-721 token, the standard widely used to create NFTs.

Helium is partnering with internet service giant DISH on its quest to build a user-powered wireless network.

According to Helium, the deal announced Tuesday marks the first collaboration between Helium, a decentralized internet network with over 250,000 hotspots, and a major carrier. Seemingly related to the move, DISH is looking to hire a “Digital Currency and Blockchain Product Lead,” according to a Tuesday job post.

“DISH Wireless is building a next-gen 5G network to disrupt the wireless industry and fuel innovation in transportation, health care, education, sustainability, city management and agriculture,” the post said.

Helium’s network connects devices to the internet using LoRaWAN. Because the network is strengthened by the addition of new hotspots, network operators are rewarded in Helium’s native HNT, a token mined by the hotspots themselves.

Helium says it has 3.5 million additional hotspots back-ordered and over 50 new manufacturers waiting to be approved to build and sell Helium-compatible hardware, according to a press release.

The company sees the back orders as a “rolling 12-month forecast” of the company’s growth, Helium Chief Operating Officer Frank Mong told CoinDesk in an interview.

The hotspots are operated in partnership with FreedomFi, a 5G company that specializes in private networks.

Read more: A16z Leads $111M Token Sale for Helium’s HNT

In August, Helium completed a $111 million token sale led by Andreessen Horowitz (a16z), which said it had been impressed by the company’s token-powered growth incentives.

“Using Helium Network’s technology and blockchain-based incentive model, DISH is a pioneer in supporting an entirely new way to connect people and things,” Helium CEO Amir Haleem said in a press release. “The CBRS-based 5G hotspots will be deployed by customers, creating opportunities for users, partners and the entire ecosystem.”

DISH said in a press release it is “no stranger to blockchain,” having accepted bitcoin payments as early as 2014.

HNT stock spiked on the news, jumping from $21.85 to $22.66, according to CoinGecko.

UPDATE (Oct. 26, 14:11 UTC): Adds HNT price reaction.

Cryptocurrency exchange FTX will air a commercial during the National Football League’s Super Bowl on Feb. 13, CEO Sam Bankman-Friend confirmed to CoinDesk on Tuesday.

• FTX has been a big spender in the sports advertising space, having locked down major deals with the NBA’s Miami Heat, Major League Baseball and the naming rights for University of California Berkeley’s football stadium.
• “Of course we’re doing the Super Bowl thing,” Bankman-Fried said in a statement to CoinDesk. “Would you really expect us not to? We actually wanted to buy the Super Bowl itself, but they don’t yet accept cryptocurrency. So we’re settling for buying ad time.”
• Bankman-Fried noted that sports sponsorships make sense because “sports fans are 2x more likely to know about crypto than non sports fans. Avid sports fans are nearly 3x as likely,” citing research from Morning Consult.
• NFL legend Tom Brady and his supermodel wife Gisele Bündchen already own stakes in FTX and serve as ambassadors for the exchange.
• A plethora of crypto-related commercials are expected to be aired this year during the Super Bowl as the industry moves towards targeting mainstream consumers.

Read More: FTX Raises $420,690,000

A law firm and a major investment platform are selling tokenized stake in a California suit. 

The “initial litigation offering,” or ILO takes its inspiration from initial coin offerings, but instead opens up retail investment in litigation finance, a primarily private field that some expect to reach $20 billion in revenue in a matter of years. 

The case is Apothio, LLC v. Kern County, California. The plaintiff says that Kern County’s Sheriff Department destroyed Apothio’s crop land in 2019, with officials alleging that the Apothio’s hemp crop had exceeded its legal THC limits. The suit seeks up to $1 billion in damages. 

The ILO, which begins its sale today, seeks $5 million in investment from retail users on Republic’s platform, which is known for tokenizing previously inaccessible investments for such users. Users will have to create Avalanche wallets to receive the tokens, which Ava Labs is helping to program. 

Kevin Seqniki, the chief protocol architect at Ava Labs, told The Block: “There’s a giant growing litigation industry that is extremely private. It’s not available to retail investors whatsoever.”

The Block initially reported on Ava Labs’ work to tokenize litigation finance in December, before any lawsuit was looking for such a means of financing. 

Meanwhile, the market for ICOs, particularly for retail investors in the U.S., has effectively died out in the past two years due to a more assertive Securities and Exchange Commission. A core of many of Republic’s offerings involves exemption from full SEC registration. This ILO is operating under the crowdfunding exemption, which allows public investment up to a fairly low funding threshold. 

In addition to Republic, this ILO is an initiative of Roche Freedman, a law firm known for representing the estate of Dave Kleiman in the case against Craig Wright, as well as a host of class-action suits against token issuers. Founder and partner Kyle Roche told The Block that he was confident in the future of ILOs for funding legal affairs because they fit within the SEC’s crowdfunding so well.

“It’s maybe not enough for every company looking to raise capital, but a $5 million cap is perfect for this,” said Roche.

If the court dismisses the lawsuit, investors get 80% of their money back. Beyond that point, they either lose their investment if the plaintiffs lose the case, or they get between 2x and 3.5x returns, depending on the timeline of a settlement or judgment. The tokens themselves are not governance tokens and do not give any rights to investors over decisions in the case. 

© 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 head of the U.S. Federal Deposit Insurance Corporation said Tuesday that the agency is focused on creating “clear guidance” on the intersection between crypto and the American banking world.

Speaking at the Money 20/20 conference in Las Vegas, FDIC chair Jelena McWilliams opened by saying that her job is to “provide clear rules of the road – to allow innovation to flourish, while mitigating risks.” 

“If we fail to do this, we risk stifling innovation and forfeiting America’s leadership in developing world-changing technologies,” she continued.

McWilliams went on to highlight the multi-agency, banking-focused work being conducted around crypto, with representatives from the Office of the Comptroller of the Currency and the Federal Reserve also contributing. Acting U.S. comptroller Michael Hsu spoke about the so-called “spring” during a Congressional hearing in May. 

“Over the past several months, the FDIC has been engaged with the Federal Reserve and the Office of the Comptroller of the Currency in what some have called a ‘crypto sprint,’ McWilliams remarked Tuesday. “Through this process, the agencies are coordinating policies for how and under what circumstances banks can engage in activities involving crypto assets.”

McWilliams went on to say:

“My objective is to provide clear guidance to the public on how our existing rules and policies apply to crypto assets, what types of activities are permissible for banks to engage in, and what supervisory expectations we have for banks that do engage in such activities. We plan to issue a series of policy statements in the coming months.”

Much of her crypto-focused remarks centered around stablecoins, or digital assets that are pegged in some way to government-issued currencies like the dollar. McWilliams said that “in order to realize the potential benefits stablecoins have to offer, while accounting for potential risks, stablecoins should be subject to well-tailored government oversight.”

“That oversight should rest on the foundation that stablecoins issued from outside the banking sector are truly backed 1:1 by safe, highly liquid assets,” she continued, going on to remark:

“If issuers purport to have reserves available on demand to satisfy withdrawal requests, regulators should have authority to ensure the funds are there, specifically if such issuers are large enough that a stablecoin “run” could result in financial instability. There are other potential risks we must be cognizant of, such as ensuring operational resilience and preventing money laundering. Establishing clear regulatory expectations will be paramount to give this market an opportunity to grow and mature in a responsible manner.”

In follow-up comments to Reuters, McWilliams notably said that “[a]t some point in time, we’re going to tackle how and under what circumstances banks can hold them on their balance sheet.”

That the head of the FDIC is putting stablecoins front and center is perhaps unsurprising, given significant movement within the U.S. government toward tighter oversight of this particular part of the crypto ecosystem. Officials within the Biden administration have been weighing proposals to apply banking regulation to the stablecoin industry.

The U.S. Treasury is expected to publish a report focused on stablecoins, including policy proposals, in the coming days. 

© 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.