Coinbase is hurting

Welcome to The Daily Moon. Two days after Vladimir Putin banned crypto payments in Russia, a blockchain firm has floated something similar. Russian blockchain company Atomyze has launched a digital token backed by palladium. The country calls it an “industrial token”. Different strokes for different folks. 

It was another good day for the markets, with Bitcoin staying put above $22,000 and Ethereum inching closer to $1,500 levels. Nasdaq began early trade on a marginal high. Back home, Sensex and Nifty rose on positive global cues. 

The Water Is Rising For Coinbase

The crypto winter has finally reached Coinbase. Starting July 19, the crypto exchange will hit the brakes on its US affiliate programme. Coinbase justified its move citing the crypto bear market. This is amidst its entry into new markets. 

What went wrong?Launched in 2019, Coinbase’s affiliate program allowed people to sign up to promote the exchange. Affiliates earned commissions and sign-up bonuses. 

But Coinbase admitted that it is unable to incentivize influencers and users to drive  platform traffic. There are plans to kickstart the program in 2023. In the meantime, Coinbase secured regulatory approvals to function in Italy. 

Is everything okay?Shutdown of the affiliate program stirred rumours of a crisis at Coinbase. The exchange saw an exit of $248 million worth of stablecoins, which is 50% of its reserves. During the same time, rival Binance saw just 1% of stablecoin outflows. The crypto community, however, has refuted these allegations. 

Coinbase is already in a tight spot over the recent layoffs and job offer withdrawals. It has sacked over 1,000 employees already. Coinbase has also witnessed a loss in volumes. From the fourth-largest exchange in 2021, Coinbase has dropped to the 14th spot. It had posted a first-quarter loss of $430 million due to a 19% drop in users.  

Choose meBehind the scenes, Binance.US has upped its ante to counter Coinbase. Binance started zero-fee trading for Bitcoin and plans to expand it to more crypto tokens. It is ready to grab Coinbase’s market in the US. 

EU’s Stable But Stringent 

Europe has its crypto regulation finalised and it isn’t all that bad. The European Union’s Markets in Crypto-Assets doesn’t impose a blanket ban on energy-intensive proof-of-work mining. The industry is viewing it with “cautious optimism.”

What do the rules say?The regulations on stablecoin and crypto will be applicable to the 27 member nations and 38 million crypto users. 

For starters, the issuers of “asset-referenced tokens” such as stablecoins will have to set aside funds over and above the reserves. Here, € 350,000 euros or 2% of total reserve assets, whichever is higher, has to be maintained. This means that stablecoin issuers such as Tether, and Circle will have to supplement their existing funds to operate in the EU.  

Crypto players say that these rules are stringent, but not an existential threat to the business. 

Meanwhile, back home…India’s finance minister Nirmala Sitharaman has clarified that while RBI wants to ban crypto, the government wants “global collaboration” to implement it. 

Crypto VCs Are Slowing Down 

Just a few months ago, venture capitalists were keen to invest in crypto. The Terra-Luna crash, subsequent collapse in crypto prices, and now the 3AC contagion has forced them to keep a distance. VC funding fell by ~26% in the first half of the year compared to last year. 

The big fallBetween January-June 2022, investment in crypto companies reached $9.3 billion. The downward trend became noticeable in May 2022, coinciding with the Terra collapse. The second quarter saw capital inflow of ~$4.2 billion into VC-backed crypto startups, about $1 billion lower than the previous quarter. 

Not all is lost The overall deal flow increased to 534 in the January to June 2022 period compared to 456 in the same period previous year. While the total investments were lower, new avenues are opening up. Niche VCs such as a16z and Binance have closed new funds. Lightspeed Venture Partners, too, has set up a new team focussing on crypto. 

3AC Owes Su Zhu?

The drama never stops if you’re Three Arrows Capital (3AC). After allegedly going AWOL, the crypto hedge fund’s founder Su Zhu wants his money back. Zhu claims that the now-bankrupt 3AC owes him $5 million. 

Gimme my moneyZhu is among the list of creditors who has filed a claim against his own company. In addition, ThreeAC Limited, the investment manager of 3AC, has also filed a claim for $25 million. This would make the fund among the largest creditors of the crypto hedge firm. 

Add to it the claims of Algorand, BlockFi, Celsius, and Voyager, the total amount to be returned is $2.8 billion. The first creditor meeting is scheduled for July 18. We wonder who will claim first right to liquidation capital.

ICYMIYou can read all about how 3AC landed in a soup here. 

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