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Quick Take

• This is part of The Block Research’s Market Commentary series
• Galaxy Digital’s $1.2bn acquisition of BitGo has been called off with Galaxy Digital citing BitGo’s failure to provide audited financial statements for fiscal year 2021 
• BitGo responded with a +$100mm lawsuit and hired law firm, Quinn Emanuel, seeking damages 
• Galaxy Digital ($GLXY) closed Monday, August 15th, trading at $6.85 / share, a +6.3% move in intra-day trading
• Today, August 16th, Galaxy is currently trading at $6.05 / share, an (11.7%) decline in intra-day trading at the time of this writing 
• Disclaimer: This is a market commentary research piece and includes opinionated views from our research team. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer by The Block Research.

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The Securities and Exchange Commission has hit yet another 2017 initial coin offering with legal action.

On August 16, the SEC filed a complaint against several business entities surrounding Dragonchain and founder John Joseph Roets over their presale and initial coin offering, which netted $16.5 million at the time.

The commission is calling the ICO an unregistered securities offering and is demanding disgorgement of the proceeds as well as a civil monetary penalty. 

The presale took place in 2017, immediately after the SEC’s July DAO Report. The report was a watershed moment, following which the SEC would treat future ICOs as potential securities offerings. 

Five years later, the SEC is still pursuing litigation against some of these offerers, as well as a number of undisclosed paid promoters. 

© 2022 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.

Crypto investment giant Digital Currency Group is getting into lobbying.

Per an August 15 filing, Julie Stitzel, the firm’s VP of public policy, has registered to lobby on behalf of DCG. It is the firm’s first direct entrance into the field.

DCG is a venture capital firm focused on the crypto industry. Its portfolio includes major stakes in Grayscale Asset Management, brokerage firm Genesis Trading, and news outlet CoinDesk. The recent filing describes DCG’s mission to “Support bitcoin & blockchain companies by leveraging insights, network & access to capital.”

Up to the most recent filings, DCG has been reporting $120,000 in lobbying spending per quarter. Those have, however, been through contracts with outside firms Klein Johnson Group and Capitol Counsel. Those contracts began last summer and fall, around the same time as overall interest in Washington, DC from the crypto industry skyrocketed in response to a crypto tax reporting requirement in the infrastructure bill. 

Many of the DGC’s portfolio companies are already heavy hitters in lobbying, including Coinbase, FTX, Ripple, Silvergate and Chainalysis. 

The registration does not indicate DCG’s planned spending on its lobbying efforts, which will likely have to wait until the next quarter’s disclosures. A representative for DCG had not returned a request for comment as of publication time. 

Despite an overall bear market, crypto industry spending on lobbying has continued to grow. Firms like FTX have likewise hired new staff to work directly on Capitol Hill. 

© 2022 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.

Bitcoin miner Riot reported a net loss of $366.3 million in the second quarter, mainly due to a $349.1 goodwill impairment charge and a $99.8 million impairment charge on its bitcoin reserves.

The company made $5.7 million in power credits during those three months by selling energy back to the Texas grid, on top of the $9.5 million it subsequently got in July.

“We believe our ability to sell power back to the grid at market-driven spot prices, thereby reducing our operating costs, is integral to our overall strategy,” the company said in a statement Monday. “While participation in various grid demand response programs may impact our Bitcoin production, we view this as an important part of our partnership-driven approach with ERCOT.”

Riot mined 1,395 BTC, down 0.7% from the previous quarter.

Revenue also fell by 8.7% to $72.9 million, of which $46.2 million was from mining and $9.8 million from hosting.

The company said it was negatively impacted by the decrease in bitcoin prices and increased variable mining costs but improved efficiencies by deploying a more considerable portion of new-generation hardware.

Last quarter, it completed its first 200-megawatt immersion-cooled building and moved all the miners that were hosted at Coinmint into its Wninestone facility, in Texas, in an effort to reduce operating costs.

“We are extremely encouraged by Riot’s financial resilience and operational achievements this quarter,” said CEO Jason Les.

The miner had a hash rate of 4.4 exahash per second (EH/s) by the end of the quarter, jumping 2.3% in three months. It anticipates reaching 12.5 EH/s by the first quarter of 2023, slightly down from the figure it had previously announced of 12.8 EH/s by January.

Riot had initially scheduled its second-quarter earnings call for last Tuesday, stating in a U.S. Securities and Exchange Commission (SEC) file that it needed more time to review its financials, citing the “complexity of analyzing the impact of various global macroeconomic and geopolitical factors.”

© 2022 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.

Celsius CEO Alex Mashinsky “took control” of the firm’s trading strategy in January on a hunch that the US Federal Reserve would raise interest rates, according to a report by the Financial Times.  

Mashinsky was convinced that a hawkish Fed decision would send already falling crypto prices lower, according to the report on Tuesday. According to the report, the CEO also created tension among some staff as he repeatedly clashed with the firm’s former chief investment officer (CIO) Frank van Etten, who left in February per his LinkedIn. 

During a call on January 21, the Friday before a Fed meeting, Mashinsky told the investment team that the coming week would be the most defining one of their careers. A person familiar with the events told the FT that Mashinsky had a strong conviction about how bad the market could get and “wanted us to start cutting risk however Celsius could.” 

The Fed signaled rate hikes in January but didn’t increase interest rates until March. Bitcoin rallied following the meeting and crypto prices didn’t crash until May.

One source told the FT that Mashinsky ordered the traders to “massively trade the book using bad information,” while another said that “he was slugging around huge chunks of bitcoin.” According to the report, in one instance Mashinsky ordered the sale of “hundreds of millions of dollars worth of bitcoin” without consulting the company’s information on its own holdings. This bitcoin was bought back at a loss a day later.

Another source, however, told the FT that while Mashinsky was vocal about his views, “he wasn’t running the trading desk.”  

According to the report, Mashinsky blocked the sale of the firm’s GBTC holdings, which were trading at a 15% discount to net asset value and worth around $400 million at the time. Celsius had bought GBTC when it was trading at a premium relative to the underlying bitcoin. Mashinsky opposed the sale, arguing that the discount might narrow. The discount is currently just over 31% after going as low as 34% in June.  

Celsius eventually unwound its GBTC position when the discount was 25% in April, taking the firm’s total losses on its GBTC trade to somewhere between $100 to $125 million, according to the FT.  

The lending platform attempted to stem its losses by borrowing from other crypto firms, pledging tokens it held as security for loans of stablecoins in the process, leaving Celsius vulnerable to crypto price movements.   

Celsius is running out of cash fast, according to recent court documents. Projections from the law firm Kirkland & Ellis filed on Sunday show the lender could run out of funds by October. The firm also owes depositors $2.8 billion more in crypto than it currently holds.

At the time of press Celsius has not responded to a request for comment from The Block. Nor has Frank van Etten. 

© 2022 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.

Zash, a firm tracking on-chain and social non-fungible token (NFT) data for enterprise use, announced Tuesday that it has partnered with the crypto exchange giant Binance.  

Through their partnership, Binance and Zash will develop a product suite of NFT data tracking and intelligence tools for NFT firms. Binance will then help Zash test and launch the product offering, Zash CEO and co-founder Parit Patel said in a release.   

While NFT projects with scrappy artistic visions have become successful, such as Creature World NFTs, Zash’s partnership with Binance suggests that we may see an uptick of NFT projects designed in the same way as data-backed businesses.

Zash tracks NFT data, and packages it in a more user-friendly way, positing itself as the NFT intelligence firm that can help project founders have a more successful NFT launch. For instance, the firm gathers key points of NFT data such as buyer, sellers, twitter count and discord followers, and packages it into an indexable API. It also tracks flippers, retweeters, holders and other key members in an NFT community.

“Zash is very close to the customer whilst highlighting what the NFT community needs and evolving their offering to drive insights discovery quickly and effectively,” Demis Bhojoo, data analytics manager for marketing and product at Binance, said in a statement.

© 2022 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.

Dogecoin is up more than 10% today, while the broader crypto market shows signs of slowing down after a rally last week.  

At the time of writing, dogecoin was trading at $0.085, up more than 21% over the past seven days, according to CoinGecko. Tuesday’s price move comes as dog-themed memecoins have rallied over the past week, with some jumping more than 28%.

Shiba inu is up 29.66% over the past week, trading hands for $0.0000157 at the time of writing. Elsewhere baby doge coin is up 19.1% in the same period, while dogelon mars rose a modest 7.9%.

Conversely, the leading cryptocurrencies by market cap, bitcoin and ether, are both down over the past day, -1.1% and –1.7% respectively. Ether had been leading the charge in crypto markets over the past few weeks, gaining over 15% between August 7 and August 14, as traders bidded on the upcoming merge. But that rally appears to have cooled off for now.

© 2022 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.

Arbitrum has hired Andrew Saunders as its first chief market officer. Prior to joining Arbitrum, Saunders led Amazon’s global brand marketing team, XCM, where he helped build the retail giant’s first entertainment and culture marketing practice globally.

Saunder’s career spans across multiple industries. Prior to Amazon, he led brand strategy for Tastemade, was the VP of content innovation at NBCUniversal, and co-founded Creative Artists Agency’s brad partnership division.

At Offchain Labs, Saunders will lead and oversee all marketing and communications efforts worldwide.

“Saunders has a unique, specialized skill set that will be paramount in assisting Offchain Labs with attaining its next level of growth globally,” said Arbitrum CEO Steven Goldfeder.

This comes shortly after Arbitrum’s launch of Arbitrum Nova — a chain focused on hyper scalability for gaming and social applications — and partnership announcements with Reddit, FTX, Consensys, P2P, and Quicknode on August 9.

© 2022 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.

Quick Take

• Illuvium is a digital collectible card game (CCG), similar to the classic Pokémon game. Illuvials are Pokémon-like creatures that can be discovered, battled, and collected.
• Its native token ILV is ranked 6th most valuable gaming token with a valuation of over $1 billion. This sets Illuvium to be one of the most anticipated blockchain game releases this year.
• The economy of all three game modes is powered via a multi-token model. The token design enables more stable in-game currencies while generating strong value accrual to the ILV holders.

This research piece is available exclusively to
members of The Block Research.
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Jump Crypto announced today it is building a new open-source validator client for the Solana network.

This new initiative’s main goal is to boost the scalability and reliability of the Solana network, which has experienced several extended periods of down time this year.

Validators play a critical role in Proof of Stake blockchains. Validators maximize the chance the canonical chain (the accepted chain that users interact with and post transaction blocks to) can be detected while also defending against potential attacks.

The reason why having multiple validators is important is because it makes it much more difficult and game-theoretically improbable for an attacker to coordinate an attack via miner (or staker) collusion.  

Jump Crypto will propose significant upgrades to Solana’s open-source core software along with building a second and new open-source validator client using the C++ programming language, separate from the one built by Solana Labs. The process will be overseen by Jump Crypto’s chief science officer, Kevin Bowers.

© 2022 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.