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JPMorgan is looking for a crypto clearinghouse: Report

Banking giant JPMorgan is reportedly looking to work with a crypto clearinghouse to add liquidity to the market.

Forbes reported the news on Monday, citing a “senior JPMorgan executive,” who spoke with the publication “on background.” The executive said, “we will fundamentally need a crypto clearinghouse to see that liquidity. Once that exists, banks will move their liquidity to it.”

Clearinghouses act as a middleman between buyers and sellers in financial markets. They validate and finalize transactions, ensuring that both buyers and sellers honor their contractual obligations. The executive said crypto clearinghouses are needed to avoid “the kind of liquidity problems that trading app Robinhood ran into.”

Last month, Robinhood had to limit the buying of stocks such as GameStop, ostensibly due to liquidity issues. Just hours after the restrictions, the firm raised $1 billion from existing investors.

The Block has reached out to JPMorgan for comments and will update this story should we hear back.

JPMorgan’s managing director Gary Chan is a “clearing house advisor” for Revolution Populi, which is reportedly raising funds to build a blockchain-based clearinghouse.

© 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.

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Author: Yogita Khatri

eToro to go public via merger with blank check company at $10.4bn valuation

London-based investment platform eToro is set to merge with a blank check company after years of speculation about the fintech firm going public. 

The company is merging with FinTech Acquisition Corp. V, a Special Purpose Acquisition Company (SPAC). Fintech Acquisition Corp. V is led by Betsy Z. Cohen, founder of The Bancorp, a banking technology firm with assets of $4.4 billion, according to its website. 

The SPAC-listing will give eToro a valuation of around $10.4 billion.

The landmark transaction includes commitments for a $650 million private placement from investors including SoftBank Vision Fund 2, ION Investment Group, Third Point LLC, Fidelity Management & Research Company LLC and Wellington Management.

“Today marks a momentous milestone for eToro as we embark on our journey to become a publicly traded company with Betsy Cohen and the team at FinTech V,” said Yoni Assia, CEO of eToro. “I want to express my gratitude for the passion, hard work, drive and determination of all of the eToro team members over the past 14 years who have helped make this a reality.”

Bloomberg first reported the news. Israeli newspaper Calcalist reported in December that eToro was working with Goldman Sachs on a $5bn Initial Public Offering on the Nasdaq exchange, but noted that the company was also examining a Special-Purpose Acquisition Company merger as an alternative route.

A source close to the discussions confirmed for The Block the existence of SPAC merger talks involving eToro towards the end of last year, albeit with a different SPAC. 

eToro was founded in Israel in 2007 by Assia, his brother Ronen and David Ring. The company pioneered a “copycat” trading system, allowing amateur equities investors to mirror the trades of more experienced traders on the platform.

The business then branched out into crypto trading via CFDs in 2013, but later phased out that structure in favour of offering direct crypto exposure to clients.

SPACs have exploded both in numbers and popularity over the past year, as managers rush to capitalize on a global tech market pregnant with later-stage players which appear to have limited appetite for taking on the administrative burden of a full public listing. SPACs are generally seen to offer a lighter-touch route to market.

Data site SPACinsider has already recorded 258 SPAC IPOs this year, up from 248 in the whole of 2020 and just 59 in 2019. 

eToro grew significantly in 2020, adding more than five million new registered users and generating gross revenues of $605 million, up 147% year-over year, according to a press release. 

© 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.

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Author: Ryan Weeks

A look at lobbying efforts in the cryptocurrency industry

Quick Take

  • As lawmakers and regulators continue to scrutinize the cryptocurrency industry lobbying efforts may become increasingly important for firms looking to protect their interests
  • The Block Research analyzes the lobbying efforts of cryptocurrency firms since 2014
  • In 2020,  the average lobbying expenditure per cryptocurrency firm was approximately $213,000

This research piece is available to
members of The Block Genesis.
You can continue reading
this Genesis research on The Block.

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Author: Steven Zheng

Austrian neo-broker Bitpanda secures unicorn status with $170m raise

Six months on from closing a $52 million Series A, Vienna-based neo-broker Bitpanda has banked another $170 million in a Series B raise that values the startup at $1.2 billion.

Peter Thiel’s investment firm Valar Ventures led both rounds, with partners from late-stage investor DST Global also participating in the latest raise. Signed last week, the Series B fundraise still needs to be approved by the Austrian Financial Market Authority, the local regulator.

“One of the positive changes caused by the pandemic was an increased interest in personal finance, and Bitpanda’s broad offer and commitment to demystifying investing for a new breed of retail investors means it is perfectly positioned to take advantage of the trend,” said James Fitzgerald, founding partner of Valar Ventures.

Bitpanda is a crypto investment platform which also offers precious metal investments, with plans to branch out into stocks and exchange-traded funds (ETFs). Launched in 2014, the company claims to have more than two million users.

Having taken no external investment for six years, CEO Eric Demuth recently told The Block that fundraising has had a “huge positive effect” on the company – adding that Thiel’s backing has boosted the firm’s profile and the quality of job applicants it receives.

The company also claims to have boosted performance recently, with revenue in the first two months of this year surpassing total revenue in 2020.

© 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.

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Author: Ryan Weeks

BitMEX co-founder Ben Delo surrendered to US authorities, released on $20 million bail

BitMEX co-founder Ben Delo surrendered to U.S. authorities on Monday and was subsequently released on a $20 million bail.

Delo traveled to New York from the U.K. and was arraigned before U.S. Magistrate Judge Sarah L. Cave during a remote proceeding on Monday, according to court documents seen by The Block. Delo pleaded not guilty, and the terms of his bail allow him to keep a U.K. passport and return to the country.

Delo — along with his fellow co-founders Arthur Hayes and Samuel Reed — were charged in October by the U.S. Commodity Futures Trading Commission (CFTC) for allegedly operating BitMEX without registering and violating CFTC rules, including anti-money laundering and know-your-customer requirements.

The U.S. Department of Justice also charged all three executives at the time, along with BitMEX’s first employee and head of business development Greg Dwyer, for allegedly violating the Bank Secrecy Act.

Earlier this month, U.S. authorities discussed a surrender agreement with Hayes, and he is expected to surrender in Hawaii on April 6. Reed was arrested last October and later released on a $5 million appearance bond. Dwyer remains at large, but U.S. authorities have begun extradition proceedings against him.

What the near future holds for all the four defendants and BitMEX? The Block reported recently to try to find some answers.

© 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.

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Author: Yogita Khatri

FalconX says $50M raise will help it woo billion-dollar hedge funds to the bitcoin market

After raising $50 million at a valuation near $700 million, crypto brokerage and trading startup FalconX is preparing to expand its customer base of deep-pocketed hedge funds.

According to chief executive Raghu Yarlagadda, who previously worked as a lead product manager for Google, the fresh capital will allow the company to expand its sales and marketing team to attract hedge funds that boast assets in excess of $1 billion. These types of firms have historically avoided the crypto market but have increasingly expanded their footprint in recent months.

Indeed, Tiger Global — a major hedge fund and venture capital investment firm — was among the lead participants in FalconX’s raise.

“We believe FalconX is positioned to be an industry leader in the institutional cryptocurrency market,” said Scott Shleifer, partner at Tiger Global.

Tiger Global, which recently closed a raise for a $3.75 billion private equity fund, has more than $36 billion under its management. 

“When we began conversations with Tiger they were just interested in learning more about the space,” Yarlagadda said. “They know what it takes to be a one-stop shop for crypto trading and they went deep into the technology.”

Founded in 2018, FalconX exists in a crowded field of players looking to sit between big investors and the cryptocurrency market. Coinbase’s prime unit (formerly Tagomi), NYDIG, and DCG’s Genesis Global are all competing for this particular type of client.

Aside from the fresh injection of cash, FalconX can count a few tailwinds, including an already profitable business that’s becoming increasingly more focused on institutions.

“At that rate that the industry is growing, large hedge funds will dominate our volumes,” Yarlagadda said. 

Today, 45% of the firm’s business is crypto-native but over the next one to two years, Yarlagadda expects the large hedge funds which top $500 million or larger in size to comprise as much as 30% of its customer base. 

Credit 

The firm’s route to wooing such market participants hints at a broader development underway in the crypto market: the growth of its credit market.

In crypto, unlike in equities and other traditional assets, the ability to borrow funds is limited and expensive. There are also only a few players — including Galaxy, BlockFi, Genesis, and Blockchain.com — that offer such services.

By contrast, that’s a common offering on Wall Street, allowing firms to make more capital efficient bets without liquidating existing positions. 

As for FalconX, the firm allows clients to delay settlement up to 20 days, which means they don’t need to put up the cash on the other side of the trade immediately. FalconX leverages on-chain data to assess the creditworthiness of its clients and provide them with lower interest rates for larger funds to entice them to use the platform. 

“The credit product enables our clients to delay their settlement window with FalconX, giving them productized short-term, fixed-rate financing combined with deep crypto liquidity,” Aya Kantorovich, the firm’s head of institutional coverage, said in an email. “Right now the choice in the market is between hourly funding rates that can swing wildly on one end, and long term fixed rates on the other end – we are solving the trading margin rate, with a combination of seamless in-product workflows, reduced back-office complexity, and great execution all within one venue.”

While the firm makes most of its revenue from trading, it could ultimately see 60 to 80% of its revenue come from credit-related services in the long run, according to Yarlagadda. 

© 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.

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Author: Frank Chaparro

5 Legal Considerations When Dealing in NFTs

Recently, I’ve been getting a ton of inbound relating to non-fungible tokens, or NFTs.

For those of you living under a rock, an NFT is an object, on a decentralized system such as Bitcoin or Ethereum, designed to be sui generis, i.e., unique. This is in contradistinction to cryptocurrency tokens, where one unit of cryptocurrency is ostensibly no different from any other, much like one U.S. dollar is ostensibly no different from any other.

Preston Byrne, a CoinDesk columnist, is a partner in Anderson Kill’s Technology, Media and Distributed Systems Group. He advises software, internet and fintech companies. His biweekly column, “Not Legal Advice,” is a roundup of pertinent legal topics in the crypto space. It is most definitely not legal advice.

When I buy a coffee with bitcoin, the shopkeeper doesn’t inquire about individual UTXOs (at least, not for the moment, although proposals to blacklist stolen coins could change that). All that matters is the coins land in his wallet and rack up a half-dozen confirmations. With NFTs the opposite is true: The provenance of the asset and its chain-of-title matters, and it matters forever.

As a result, legal thinking needs to be applied not only to NFT systems as a whole (much as it has been for the past several years when cryptocurrency developers seek out legal opinions as to the status of their blockchain systems) but also to individual NFT assets and the manner of sale of those assets.

See also: Jeff Wilser – How NFTs Became Art, and Everything Became an NFT

Where early NFT experiments like CryptoKitties simply ignored these formalities and people bought the tokens anyway, new platforms are bringing increasing degrees of commercial, technical and legal sophistication to their products.

Here are five things worth considering. It goes without saying, this is not legal advice and I’m not your lawyer. But these might form a good jumping-off point for discussion with your lawyers as you build your offerings.

NFTs aren’t necessarily securities …

The NFT craze hearkens back to the heady days of the initial coin offering boom in 2017. ICOs allowed blockchain entrepreneurs to pre-sell coins on networks not yet built. Although the theory of these offerings was that the tokens were collectibles or commodities – one prominent project referred to its pre-sold tokens as a “tote bag,” another described its as being akin to “fuel” – the U.S. Securities and Exchange Commission took issue with many projects that followed this fundraising template. As the Telegram and Kik cases and the recently announced Ripple Labs enforcement action, make plain, pre-selling cryptocurrency tokens in the United States is not, legally speaking, a good idea.

NFTs, on the other hand, are collectibles. Legally this means they are easier to distinguish from “investment contracts” of the sort that get captured by securities laws.

The reason schemes like Ripple Labs’ have been caught within the U.S. SEC’s regulatory perimeter are because they allegedly satisfy the three prongs of the test in SEC v Howey. There is an investment of money in a common enterprise with the expectation of profits arising from the efforts of a promoter or third party. The reason this rule does not apply to, say, a gold eagle dollar or a Magic: the Gathering card is due to the absence of a common enterprise and the absence of an expectation of profit arising from the efforts of promoters or third parties.

… but NFTs can become securities or other regulated products

Let’s take a royalty contract, for example. Alice the Author wants to sell NFT-signed e-books of her popular young adult literature. She approaches Norman, the NFT platform operator, if he can make one for her. Norman agrees to do so if he can split 50% of the profits of the initial sale and get a 5% cut of all secondary market sales thereafter. Alice and Norman sign a contract and the NFT is sold to Bob, who sells it to Carol.

Without more, there is not an obvious reason that either the royalty contract, the sale to Bob or the sale to Carol should constitute an investment contract (and therefore a security). The royalty contract is a private profit-sharing agreement. The sale to Bob looks a lot like any other consumer transaction. Bob’s sale to Carol, similarly, is a private sale of a consumer good.

See also: What Are NFTs and How Do They Work?

Alice could, however, inadvertently turn a non-security into a security if she tries to be too clever about monetization. For example, if Alice fractionalized the NFT and sold fractions of a book or profits from one, that might fall foul of the securities laws.

Similarly, if Alice made an NFT that was the beneficiary of cash flows from other NFTs, that would almost certainly be a security. Also, if Alice represented that the value of the NFT would go up as a result of efforts Alice was planning to undertake to make the NFT useful as part of an online platform yet to be built – in other words the “utility token” argument from 2017 – that also could move Alice’s NFT from unregulated territory into regulated territory.

An NFT that performs the function of a regulated product will be regulated like a regulated product. Changing the name of the thing to “NFT” isn’t enough to not apply financial services laws, any more than changing “IPO” to “ICO” was back in the day.

Know what you’re buying

Purchasers of NFTs should ask sellers what they’re getting in exchange for their money.

Depending on the functionality the NFT promises to deliver those questions will vary, but might include the following: Who is your counterparty? Who is obliged to render performance to you and what are they obliged to do? How do you enforce those rights and in what forum? Are you buying an original artwork, an image of an artwork, a right to make derivatives of an artwork or a right to display an artwork?

Are you buying information, copyrights, bragging rights or none or all of those things? Do you have the documentation to back all of that up?

Lawyers can help you parse what questions need to be asked for particular kinds of tokens. Ignoring these questions could result in significant financial or legal pain down the road, so it’s best not to ignore them today.

Just because securities laws might not apply doesn’t mean other laws won’t

NFTs may be the Wild West of crypto, but this is not a lawless frontier – and failing to structure a consumer product correctly can land entrepreneurs in hot water.

It goes without saying, don’t lie. Don’t engage in deceptive trade practices. Don’t sell goods you don’t have. Don’t sell rights you don’t own. Don’t infringe on third-party intellectual property. Make sure you have the proper documentation to back what you’re selling. Don’t use NFTs to launder money, don’t sell NFTs to North Koreans and don’t sell NFTs that obviously pertain to the commission of, or could facilitate, crime.

Platforms that sell legally enforceable rights are more likely to succeed in the long term

A further problem with current NFT proposals is that in the mad rush to issue the tokens to eager purchasers, legal corners will be cut.

In one recent case, as part of an elaborate troll, an artist selling NFTs on OpenSea swapped out modern artwork for pictures of oriental rugs. The artist’s point was a simple, but important, one: Just because you have an entry on a database doesn’t mean that you have anything more than that. Just because an NFT seller is selling you an NFT that is associated with a painting doesn’t mean that you’re buying rights in that painting.

It is, of course, possible for NFTs to represent ownership in some underlying asset or artwork. It is possible, by contract, to transfer exclusive rights of ownership or to define the terms on which a creative work, whether written, drawn or coded, is licensed to an NFT holder.

Few platforms seem to be doing the legal legwork necessary to convey valuable rights together with their tokens. My suspicion is legally enforceable copyrights and hard-coded, on-chain monetization mechanisms will be a valued feature for NFT platforms, and the platforms with the most effective monetization schemes will attract the most in-demand content creators (and therefore the best content).

Moving up a layer in the stack, hardware devices and ad platforms could then be built to interact with these content networks and automatically pay creators license fees for their work. That way consumers are insulated from liability and creators know they will be paid for their work. Image aggregators like Getty and copyright enforcement law firms stand to lose big.

That’s why the NFT space is interesting to me, and why it should be interesting to you, too.

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Author: Preston J. Byrne

Encrypting messaging platform Signal is now accepting crypto donations

Signal, the startup behind the cross-platform encrypted messaging app, is now accepting donations in cryptocurrency.

“As a nonprofit organization, we depend on your support. If you’ve been patiently waiting for Signal to accept cryptocurrency donations, you no longer need to hodl back your generosity,” the team tweeted Monday.

All crypto donations made to the app will be processed through The Giving Block, a donations platform for charities, universities, and nonprofits. Users can donate in BTC, ETH and LTC, among other cryptocurrencies.

According to Signal, if users based in the United States want to receive a tax deduction for their cryptocurrency donation, they have the option to provide an email address to receive a tax receipt. Users can also choose to donate anonymously. 

© 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.

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Author: Saniya More

‘NFT’ search volume on Google hits all-time high as platform user count nears 400K

The Google search volume for the term “NFT” — short for non-fungible token — has reached an all-time high, according to data collected by The Block Research. 

Search volumes are relative between 0 to 100, with 100 being the maximum value from a defined time period. The Google search volume hit 100 for the week starting March 8. That figure grew from a rating of 15 in mid-February to 64 by early March. 

As The Block has recently reported, the NFT market has seen a significant increase in activity, particularly from celebrities, sports, and companies.

The NFT space has witnessed the emergence of promising new projects like Hashmasks as well as artists, old and new, minting their pieces (and selling for big checks). 

This increase in interest is further evidenced by the number of weekly users of NFT platforms, which reached an all-time high of 398,800 users for the week starting March 8. Crypto-collectible marketplace NBA Top Shot made up the majority of the total with 379,000 users, followed by Ethereum-based NFT game Axie Infinity with 12,260 users. 

The weekly trade volume of NFTs has shown a higher degree of volatility, not quite lining up with the above data.

This volume hit an all-time high in the last week of February with a total of $196.35 million traded. NBA Top Shot accounted for $125 million, while NFT marketplace CryptoPunks accounted for $62.67 million. 

© 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.

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Author: Saniya More

France’s government is set to auction off $34 million in bitcoin this week

An auction house in France will host the sale of 611 BTC this week on behalf of a French government agency.

At current prices, that amount is worth about $34.2 million, though the amount up for grabs will be sold across several hundred small tranches. 

Set for Wednesday, March 17, the auction will begin at 9 a.m. and feature 437 individual sale lots, ranging from 0.11 BTC to 2 BTC, according to the website for Kapandji Morhange.

As noted earlier this month by French publication Cyberguere, the vast majority of the funds stem from the 2019 hack of exchange service GateHub. The funds stolen at the time were in the form of the digital asset XRP, later believed to have been exchanged for bitcoin. 

The auction is being held on behalf of AGRASC, or the French Agency for the Recovery and Management of Seized & Confiscated Assets. Per the auction notice, any participants should have registered prior to March 13. 

Bidding on roughly 0.75 BTC in an auction held by the U.S. government starts Monday afternoon, as previously reported. 

© 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.

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Author: Michael McSweeney


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