Tag: crypto

Indian crypto firms to command high valuation as big VC firms enter M&A rac, BFSI News, ET BFSI

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The anointing of CoinDCX, a crypto exchange, as the first Indian crypto unicorn, ironically happened on the day the government vowed in Parliament to eliminate crypto assets.

CoinDCX was valued at $1.1 billion in a funding round to raise $90 million, surprising many as it came amid huge regulatory risks and the government’ stiff opposition to cryptocurrencies.

However, experts say many such deals would be cracked as larger players from venture capital, private equity and pension funds are outplaying smaller boutique firms and family offices from participating in the latest innovations around crypto.

boutique investment firms and family offices are being elbowed out by big venture capitalists, private equity funds, and even some pension funds. He noted that smaller venture capital firms are unhappy about this trend.

“Let’s say they’re looking at a deal and they believe it’s worth $10 million, and you’re seeing large VCs come in and put a bid in for a higher valuation. This is happening a lot with very early-stage companies, say, $5 million to $20 million — the prices are being inflated, says Henri Arslanian, Crypto Leader at professional accounting and financial services firm PWC.

Valuations rocket

According to the State of Crypto M&A 2021 report, even though deal activity in 2020 increased only 10% from the previous year, total deal value doubled to $1.7 billion. This was primarily due to a handful of large acquisitions in the crypto exchange space, including the $400 million acquisition of Coinmarketcap by Binance and FTX-Blockfolio transaction for $125 million. This trend has continued this year, with Galaxy Digital acquiring Bitgo for $1.2 billion.

In July, derivatives exchange FTX’s valuation rose to $18 billion after the company raised $900 million from investors. In addition, the Digital asset platform Fireblocks raised $310 million to achieve a value of $2 billion.

Pricing challenges

There are some challenges in pricing cryptocurrency startups. They include how to discount for regulatory risk in such a nascent industry and how to assess the valuation of businesses. There is also an issue of the lack of companies to invest in since most firms in the crypto space are still small and not well developed yet.

“If the minimum ticket size of an investor is around $50 million, there aren’t that many companies that have that status yet. If you’re a large pension fund and you decided to make a crypto allocation, there are no more than two dozen companies around the world that are investable, looking for capital and could absorb $100 million,” Arslanian said.

According to Delhi-based data intelligence platform VCC Edge, VC firms poured in more than $176.9 million via 13 deals in the sector. This is a significant jump from $44 million in 10 deals that were cracked by VC firms in the previous year.

The investment accounts for 50% of all deals pertaining to crypto firms this year but industry insiders say more such deals are expected as per reports.



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‘Government does not recognise cryptocurrency as legal tender’

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The Finance Ministry on Tuesday informed the Rajya Sabha that the number of ‘billionaires’, in terms of income tax payers, had more than doubled during assessment year or AY 2019-20 (fiscal year 2018-19) but reduced a bit in AY 20-21 (fiscal year 2019-20). In response to another question, it reiterated that it does not consider cryptocurrencies legal tender or coin.

Taxpayers

In her written reply to a question on the number of billionaires, Finance Minister Nirmala Sitharaman clarified that there is no legislative or administrative definition of the term ‘billionaire’ under direct taxes. Wealth tax has been abolished with effect from April 1, 2016; therefore, the Central Board of Direct Taxes (CBDT) no longer captures information about the complete wealth of an individual taxpayer.

‘Ethereum Improvement Proposal’ all set to bring major change to crypto world

She informed that 77 individuals had disclosed a gross income higher than ₹100 crore (one billion rupees) in a year in their return of income during AY 2018-19, and their number rose to 141 the next year before falling to 136 in AY 2020-21.

Crypto-currencies

In response to another question, Minister of State in the Finance Ministry Pankaj Chaudhary said in a written reply: “The Government does not consider cryptocurrencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system. The Government will explore use of block chain technology proactively for ushering in digital economy.”

Saverin-backed exchange becomes India’s first crypto unicorn

Further, he mentioned that a high-level inter-ministerial committee (IMC) constituted under the chairmanship of the Secretary (Economic Affairs) to study issues related to virtual currencies and propose specific actions had recommended prohibiting all private cryptocurrencies, except any issued by the State. “The Government would take a decision on the recommendations of the IMC and the legislative proposal, if any, would be introduced in the Parliament following the due process,” he said.

Seizure of govt assets abroad

Replying to a question, Chaudhary said an order has been passed by a French court freezing certain Indian government properties in the case pertaining to Cairn Energy. This had been communicated through diplomatic channels. Counsels with relevant experience have been engaged to handle the enforcement proceedings. In consultation with its counsels, the government is taking legal steps to protect its interests. He also informed that the Taxation Laws (Amendment) Bill, 2021, passed by Parliament, is expected to reduce litigation.

“Government of India is not in receipt of any investment arbitral tribunal award against the Republic of India that in itself allows for the seizure of Government of India properties held abroad,” he said.

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Saverin-backed exchange becomes India’s first crypto unicorn

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CoinDCX became India’s first cryptocurrency unicorn after the exchange raised ₹670 crore ($90 million) from investors led by Facebook Inc. co-founder Eduardo Saverin’s B Capital Group, even as local authorities push back against crypto assets. The latest funding round values the firm at $1.1 billion, Chief Executive Officer and co-founder Sumit Gupta said in an interview on Tuesday. Other investors include existing partners Coinbase Ventures, Polychain Capital, Block.one, and Jump Capital.

Gupta plans to use part of the funds to double his team in the next six months to about 400 people in India, where investments in crypto grew to nearly $6.6 billion in May from some $923 million in April 2020, according to Chainalysis. The investment comes as policymakers continue to debate on the status of digital currencies in India — as recently as last week the central bank said it has “major concerns” about private virtual currencies and the government will take a final stance on the matter.

“I am pretty sure the industry will be regulated at the right time,” Gupta said. “We have chosen to put at stake our money and career as we feel this is going to be a very good wealth generation opportunity for people.”

Also read: ‘Ethereum Improvement Proposal’ all set to bring major change to crypto world

The 30-year-old engineer from the elite Indian Institute of Technology spent several hours daily reading about blockchain and cryptocurrencies before setting up CoinDCX in 2018. Registered in Singapore as Primestack Pte., it aims to expand its user base to 50 million from 3.5 million over the next few years and focus on educating users on crypto and blockchain.

Investments surged after the Supreme Court last year quashed a ban on banks facilitating crypto trades. The four biggest crypto exchanges in India saw daily trading jump to $159 million from $28.6 million a year ago, according to CoinGecko.

Volatile nature of asset

For regulators, the volatile nature of the asset has been a worry. After touching a high of $64,870 in April, Bitcoin lost more than half of its value and fell to $28,824 in June. The Reserve Bank of India is looking to create its own digital currency. Gupta believes India has what it takes to achieve dominance in the space.

The company plans to offer new products including for wealthy individuals in coming months. “We have a very tech savvy population, good mobile penetration, big base of engineers and developers who can leverage blockchain technology,” Gupta said. He believes India will produce more than 100 crypto unicorn start-ups in the next few years once regulation is firmed up.

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CoinShares data, BFSI News, ET BFSI

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NEW YORK: Bitcoin investment products and funds registered outflows for a fifth consecutive week, as investor sentiment remained cautious in the midst of increased global regulatory scrutiny, data from digital asset manager CoinShares showed on Monday.

Outflows from the world’s most popular cryptocurrency totaled $33 million in the week ended Aug. 6, compared with $19.7 million the previous week. But so far this year, bitcoin inflows remained a robust $4.2 billion.

Total crypto outflows, meanwhile, added up to nearly $26 million, although CoinShares noted that the magnitude of outflows was much less than in May and June.

Sluggishness in the crypto market was due in part to global regulatory crackdown, analysts say.

“There’s all this focus on crypto because with all the new financial products and innovative solutions, governments, which are here to protect investors, are going to wonder whether this is a good idea and so, they’re going to look more into these,” said Matthijs de Vries, chief technology officer at infrastructure provider AllianceBlock.

Bitcoin on Monday hit an 11-week high above $46,000 . Since mid-July, bitcoin has gained 46% against the dollar.

Data also showed that ether, the token used in the Ethereum blockchain, also saw outflows of $2.8 million, from a nearly $9-million outflow the previous week.

Last Thursday, Ethereum, the second-largest blockchain network, went through a major software upgrade, which is expected to stabilize transaction fees and reduce supply of the ether token.

Ether’s supply is being reduced through “burning,” in which tokens are sent to specialized addresses that have unobtainable private keys. Without access to a private key, no one can use the tokens, putting them outside the circulating supply.

About $59.2 million worth of ether tokens have been “burned” since Thursday’s software upgrade, according to ultrasound.money, a website that tracks ether burning and supply.

Investors expect ether to accelerate gains as the Ethereum network burns more of its tokens. Ether was last up 4.9% at $3,161.93.



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Risks & Regulatory Imperatives, BFSI News, ET BFSI

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In today’s age of the Internet, fiat and account-based electronic money are in a state of flux. A decade after Bitcoin was introduced to the world by Satoshi Nakamoto, token-based digital currencies have proliferated to include a wide variety of private cryptocurrencies, central bank digital currencies and stablecoins. Central bank digital currencies (CBDCs) are a direct liability of the central banks. Stablecoins, on the other hand, are fiat collateralised (linked to fiat currencies such as the US dollar or euro.) or collateralised as per the value of the underlying asset or reserve.

Regulators across the globe are concerned about the unprecedented growth of tokenized money, stablecoins in particular, and its potential to disintermediate incumbent financial institutions , create volatility and financial stability risks.

Let’s Decrypt Stablecoins
Are the concerns over stablecoins legitimate? Let’s understand this token and its various types in detail to make an informed opinion.

So, what are stablecoins? Unlike Bitcoin and other popular cryptocurrencies, known for wild volatility, stablecoins are blockchain-based cryptocurrencies backed by safe reserves.

But, are stablecoins really stable?

Let’s have a look at different types of stablecoins classified solely on the basis of the value that underpins them.

Types of Stablecoins
● Fiat-collateralized stablecoins: These stablecoins are collateralized by fiat money, such as US dollar, euro or the pound, on a 1:1 ratio. Common examples are Tether (2014), Gemini Dollar(2018) and TrueSD.

● Stablecoins backed by other asset classes: There are a few stablecoins, which are backed by a basket of multiple assets (commercial papers, bonds, real estate, precious metals, etc). The value of these stablecoins can fluctuate over time subject to movement in commodity and precious metal prices. Digix Gold, backed by

physical gold, was introduced in 2018. SwissRealCoin, launched in 2018, had a Swiss real estate portfolio.

● Crypto-collateralized stablecoins: Crypto-collateralized stablecoins are more decentralised than their peers and are backed by cryptocurrencies. The flipside is price volatility. To address the risk of price volatility, these stablecoins are over-collateralised. Dai (launched in 2017) is the most popular crypto-collateralized stablecoin.

● Non-collateralized stablecoins: These stablecoins do not have any backing and are decentralized in the true sense. The supply of non-collateralized stablecoins is governed by algorithms. Basis, introduced in 2018, is the most common stablecoin in this category.

Risks from Stablecoins
Tether, arguably the largest stablecoin issuer, disclosed in March that it held over 75% of its reserves in cash and cash equivalents, most of which are in the form of commercial paper. The remaining assets include loans to unaffiliated entities (12.55%), corporate bonds, funds & precious metals (9.96%), and additional investments which include Bitcoin and other digital tokens (1.64%).

The commercial paper holdings of Tether outnumbered leading money market funds (MMF) in the US and Europe.

In the event of a mass selloff of Tether coins along with other stablecoins, short-term credit markets will have to bear the brunt. In June this year, the crash of Iron, an algorithmic stablecoin, gave us a glimpse of the risk they run. That made Mark Cuban, an America’s billionaire entrepreneur and a victim of Iron collapse, to raise his voice for regulating stablecoins.

Fitch Ratings has rightly cautioned that potential asset contagion risks linked to the liquidation of stablecoin reserve holdings could increase pressure for tighter regulation of the nascent sector.

Clarion Call for Regulation
US Secretary of the Treasury Janet L Yellen has underscored the need to act quickly to ensure there is an appropriate US regulatory framework in place.

“You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies, if you had a digital US currency,” US Fed Chairman Jerome Powell told a Congressional hearing this July.

He made it clear that the Fed is done letting stablecoins run amok. “We have a tradition in this country where the public’s money is held in what is supposed to be a very safe asset,” Powell said. “That doesn’t exist for stablecoins, and if they’re going to be a significant part of the payments universe… then we need an appropriate framework, which frankly we don’t have.”

Last year, European Commission came out with a regulatory framework proposal for crypto assets and stablecoins. The Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, has highlighted the potential of global stablecoins (GSCs). FSB says, “A widely-adopted stablecoin with a potential reach and use across multiple jurisdictions (so-called ‘global stablecoins’ or GSCs) could become systemically important in and across one or many jurisdictions, including as a means of making payments.

But those who back stablecoins say with the established use cases in cross-border payments, settlements and financial inclusion, a global regulatory framework is all that is needed to harness the full potential of stablecoins.



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New crypto threatens to dethrone Ethereum after its latest upgrade, BFSI News, ET BFSI

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New Delhi: A fresh update on the Ethereum blockchain has provided fresh ammunition to a new cryptocurrency, Solana, to challenge the former – a more popular and established token – and take its place of pride.

The new update, called ‘London Hard Fork’, on the Ethereum blockchain includes five Ethereum improvement proposals (EIPs). The exact date of its release could not ascertained.

There was no limit on Ethereum mining so far. Miners used to be rewarded with brand-new coins every time they validated a block and were compensated with the transaction fees paid by users. ‘London Hard Fork’ aims to fix this, and says miners will no longer receive transaction fees.

This upgrade will most certainly enhance the Ethereum blockchain, and the way in which the asset is priced, as supplies will become limited. It will increase the transaction speed per second, leading to less congestion and significantly reduced fees.

On the contrary, miners will be affected, as it will burn a portion of the fees generated on the blockchain, which will in turn reduce their revenue and may prompt some of them to go for possible migration.

“Solana would be a key beneficiary of a possible migration, if there is any, as it can process transactions at a much faster pace even after the updated Ethereum,” said Nirmal Ranga, Vice President (Trading), ZebPay. “Solana is favoured due its fast, secure and censorship-resistant blockchain that provides an open infrastructure.”

Crypto experts said Solana is not the only prominent successor, as it faces fierce competition from the likes of Algorand, Cardano, Tezos and Polkadot, and a few others. A prudent approach is to assess the token on its own fundamentals and strength.

Solana, launched in April 2020, is a relatively nascent cryptocurrency. It has gained a lot of attraction, bragging about its scalable technology. The USP of this crypto is the huge transaction speeds on its blockchain network at dirt-cheap fees, experts said.

The recent sensation of the crypto world has surged over 4,500 per cent since its inception. In 2021 so far, the digital token has delivered over 2,200 per cent return. Currently, the token is trading at $34.5, about 40 per cent below its peak value hit in May 2021.

“Solana is not the usual ‘pump and dump’ crypto, but more of a platform that can be used to build several applications. Decentralised apps — also known as DApps — are built on these blockchain networks,” said Edul Patel, CEO & Co-founder, Mudrex.

One of the most significant competitors to the Ethereum network is Solana. The transaction speed and scalability of the Solana network are what set it apart from a lot of other cryptos, Patel said.

In terms of scalability, the Solana network can handle more than 50,000 transactions per second. Also, it is more cost efficient, which is adding to its traction.

Some people drew comparisons between Solana and Internet Computers (ICP), but the recent crash in prices in ICP and the buzz about major dumping by the founders made several ICP investors unhappy. Thus, many people moved to Solana.

Hitesh Malviya, crypto guru and founder of itsblockchain.com said the Solana ecosystem introduces a number of new, efficient technologies that cooperate so as to enable the Solana blockchain to facilitate greater transaction speeds and a highly secure platform.

“This fund will supercharge the building of the DeFi ecosystem on the back of the Solana blockchain,” said Ranga of ZebPay. “It can be anticipated that this fundraising will help the token to climb higher on the ladder.”

The fundraising has already had its impact on the price of the native token. The volume of Solana has risen by almost 150% in just six months.

Differences with Ethereum
Solana and Ethereum cater to different audiences of the blockchain. Ethereum is a community-run technology-powered cryptocurrency, whereas Solana is for those who are interested in a fast, secure and censorship-resistant blockchain providing the open infrastructure required for global adoption.

Even though Solana is achieving great heights, Ethereum has the first mover advantage of sorts, given its reach and legacy.

Solana does not support integration with Binance smart chain, Meta mask, Rarible and other services. There are about 88 softwares that integrate with ethereum. Transaction per second and cost efficiency are the other differences between the two challengers.

Who emerges victorious?
Solana is a key challenge to Ethereum’s throne, as the former has the potential to make some big plays and become the preferred blockchain among DeFi applications and NFT offerings.

However, these are early days for Solana. “Developers might be struggling over the Solana, but for investors looking to build wealth in the crypto space, the token price needs to go up,” said Patel of Mudrex.

Despite the technological superiority, Solana’s adoption is lagging far behind Ethereum, even when the latter has been facing issues with network congestion, high transaction fees and is struggling to meet booming demand for DeFi products.

Solana does away with the scalability issues that most existing blockchain platforms suffer from, said Malviya of itsblockchain.com. “The Solana ecosystem has made great progress towards achieving interoperability, and it is already connected to the Ethereum ecosystem through the Wormhole bridge, which allows users to do intratrade,” he said.

“Yet, it would very difficult for Solana to replace Ethereum, mainly because Ethereum has a better hold on the market, thanks to its early entry and eventually having very high brand recognition. Solana, no doubt, has better technology, but it takes time for people to adopt new technology,” said Ranga of Zebpay.



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Chinese crypto addresses sent $2.2 billion to scams, darknets in 2019-2021 -report, BFSI News, ET BFSI

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NEW YORK – Chinese cryptocurrency addresses sent more than $2.2 billion worth of digital tokens to addresses tied to illegal activity such as scams and darknet operations between April 2019 and June 2021, according to a report from blockchain data platform Chainalysis released on Tuesday.

These addresses received $2 billion in cryptocurrency from illicit sources as well, making China a large player in digital-currency related crime, it added. The report analyzes China’s cryptocurrency activity amid government crackdowns.

However, China’s transaction volume with illicit addresses has fallen drastically over the two-year period in terms of absolute value and relative to other countries, Chainalysis said. The big reason is the absence of large-scale Ponzi schemes such as the 2019 scam involving crypto wallet and exchange PlusToken that originated in China, it noted.

Users and customers lost an estimated $3 billion to $4 billion from the PlusToken scam.

The vast majority of China’s illegal fund movements in crypto has been related to scams, although that has declined as well, the Chainalysis report said.

“This is most likely because of both the awareness raised by PlusToken, as well as the crackdowns in the area,” said Gurvais Grigg, global public sector chief technology officer at Chainalysis, in an email to Reuters.

The report also cited trafficking out of China in fentanyl, a very potent narcotic pain medication prescribed for severe pain or pain after surgery.

Chainalysis described China as the hub of the global fentanyl trade, with many Chinese producers of the drug using cryptocurrency to carry out transactions.

Money laundering is another notable form of crypto-based crime disproportionately carried out in China, Chainalysis said.

Most cryptocurrency-based money laundering involves mainstream digital currency exchanges, often through over-the-counter desks whose businesses are built on top of these platforms.

Chainalysis noted that China appears to be taking action against businesses and individuals facilitating this activity.

It cited Zhao Dong, founder of several Chinese OTC businesses, pleading guilty in May to money laundering charges after being arrested last year.



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Bitcoin in bank account? How banks can partner crypto firms, BFSI News, ET BFSI

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Can’t beat them, join them.

After stonewalling cryptocurrencies and firms, banks are now coming around to the cryptocurrencies.

Indian bankers, which are not ready to touch crypto even with a barge pole following the regulator’s reluctance over cryptos, can parse the American Bankers’ Association’s (ABA) report on how lenders can partner from the new-age currency.

The ABA report

The American Bankers’ Association (ABA) has issued a new report that suggests banks consider partnerships with crypto firms based on the increased profitability of the sector and client interest. The ABA further suggests crypto use cases for banks with revenue models and regulatory issues for each use case.

“Cryptocurrency markets are rapidly evolving, and there is currently a diverse and complex ecosystem of companies offering access to digital asset products. The digital and programmable nature of these products means they can be used to facilitate many kinds of financial activities that increasingly mirror the products and services offered by traditional financial institutions, ” it said.

The use case for banks

n payments the blockchain-powered payment networks have the potential to allow for faster and more efficient payments, especially in cross-border transactions.

In lending blockchain technology can allow for cheaper, more secure, and more efficient lending processes while in settlements, distributed ledgers can provide cheaper and faster transactions between financial institutions.

Custody/Wallets provides independent/secure storage for users to hold and invest in crypto assets, while KYC/AML helps banks track the flow of funds and identify the parties involved in digital asset transactions

Digital identity distributed ledgers can provide the necessary record of information needed for authentication and verification purposes while given the proposed reporting structure for crypto transactions, the distributed ledger transactions can be easily found and reported in an efficient and timely manner.

Banks can offer business banking services to crypto companies such as corporate accounts, USD/fiat custodial accounts.

The customer can lend his or her crypto for interest and a bank could earn a fee or percentage of the crypto earned.

Banks could also charge fees for these services similar to a debit or credit card transaction and can provide crypto lending to borrowers for a fee.

Banks can look into revenue models that include charging transaction fees, listing charges for adding crypto to a platform, and deposit fees.

They can look at revenue from collecting the spread on transactions for crypto assets that are classified as securities.

The asset management use case for banks would enable a fee for service on a crypto portfolio.

In India, this will need the regulatory haze to fade first.



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Bitcoin rallies past $40,000 level to highest since mid-May, BFSI News, ET BFSI

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The largest cryptocurrency gained Sunday for an 11th day in the past 12 and traded up to $42,606, its highest since May 18. Market watchers have pointed to $40,000 as an important inflection point. It was up about 0.5% at $41,739 as of 6:13 a.m. New York time on Sunday.

“A run like this certainly suggests some flow backing,” said Jonathan Cheesman, head of over-the-counter and institutional sales at crypto derivatives exchange FTX, in a note Saturday. “Of course, it now needs to stabilize here — and above the high from May 20 would be further confirmation.” Bitcoin traded as high as $42,541 on May 20.

Bitcoin, which for weeks trended downward from its mid-April record near $65,000, has now spent more than a week building back as supportive comments from Elon Musk and Cathie Wood helped bump it out of a declining trend. Digital-asset-related job postings by Amazon.com Inc. and resulting speculation helped as well.

Edward Moya, senior market analyst for North America at Oanda Corp., a offered a note of caution about the recent run.

“Retail interest is strong, while institutional interest is somewhat lagging and needing fresh endorsements,” he said in a note on Friday. “Bitcoin volatility might remain elevated over the weekend and traders should not be surprised if a spike occurs toward the $42,000 level during some illiquid times.”

Still, the cryptocurrency has risen over the past week back above its 50- and 100-day moving averages, with the 200-day at about $44,700 in sight.

“It won’t be surprising to see Bitcoin expand the $30,000 to $42,000 trading range on the upside and attempt $45,000,” Pankaj Balani, chief executive officer of crypto derivatives exchange Delta Exchange, said in a note July 27.

“However, breaking above $50,000 will take some doing for Bitcoin. Only a conclusive break above $50,000 would attract fresh flows and signal a change in the broader direction for the market.”



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China’s central bank says it will keep pressure on crypto market, BFSI News, ET BFSI

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China’s central bank vowed to maintain heavy regulatory pressure on cryptocurrency trading and speculation after escalating its clampdown in the sector earlier this year.

The People’s Bank of China will also supervise financial platform companies to rectify their practices according to regulations, it said in a statement on Saturday. Policy makers met on Friday to discuss work priorities for the second half of the year.

China launched its most intense crackdown on crypto trading and mining since 2017 in recent months, after a surge in Bitcoin and other tokens heightened authorities’ concerns over risks of fraud, money laundering and excessive energy usage. It also imposed a series of regulatory actions targeting monopolistic behavior at online payment platforms such as Ant Group Co. over the past year.

The central bank will act to prevent major financial risks and push to lower the number of high-risk financial institutions in key provinces, according to the statement. It will also accelerate its work to create a financial stability law, which was proposed by Deputy Governor Liu Guiping in March.

The PBOC reiterated that its prudent monetary policy will be flexible, targeted, reasonable and appropriate. It vowed to implement a good “cross-cyclical” policy design, a term widely interpreted to mean authorities will use a longer time frame when considering policy support and will avoid overstimulating the economy.



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