February 23, 2022 | Issue #209

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 MUST READS 

Coinbase Earnings Preview

Tomorrow, after market close, Coinbase (COIN) will report fourth-quarter earnings.

Since Q3 earnings on November 9, 2021, the company's share price has been on a consistent slide, dropping more than 50%. Over the same period, the price of Bitcoin (BTC) and Ethereum (ETH) are both down more than 43%.

Analysts are expecting Q4 revenue of $1.9 billion, a 300% increase from Q4 2020, and an EPS of $1.88.

The earnings call is scheduled for 5:30 p.m. EST and investors can listen in and ask questions here. Here's what to keep an eye on:

Trading Volumes & Monthly Active Users
As a leading retail exchange with arguably the highest trading fees on the market, trading volumes and monthly active users (MAUs) are highly important metrics. And with crypto prices soaring to all-time highs before coming back down, Q4 should be an interesting quarter for the company.

According to Nomics, Coinbase's Q4 daily trading volumes were 16% above the company's best quarter to date (Q2), when revenue topped $2 billion. Based on this, it's possible that Coinbase could report higher revenue, monthly transacting users, and trading volume as increases in those metrics have been correlated to crypto price volatility.

Other Areas Of The Business
As Coinbase continues its attempt to diversify its revenue away from trading fees, we expect an update on their other streams of revenue, including staking.

Furthermore, in October, Coinbase announced plans to launch an NFT platform similar to OpenSea's. Since then, investors haven't heard much news around the platform aside from the fact that the company has millions of people on the waiting list. With OpenSea's latest issues, we expect there to be questions and answers around the NFT endeavor.

We would also like to hear from the company about their Coinbase Cloud offering which is supposed to be a sort of AWS for crypto.

Venture Fund Markups
Although Coinbase has been vocal about the "record year" for its venture capital portfolio, we haven't gotten a ton of insight into just how "record" setting it was. By the looks of the company's portfolio and the stages at when they made a lot of their investments, we have to assume the markups (on-paper gains) for the companies have to be sizable.

If that wasn't enough, Block (SQ), previously Square, also reports earnings tomorrow after market close.

FTX US Launches A New Gaming Business

On Monday, cryptocurrency exchange FTX announced the launch of a new gaming unit.

Dubbed FTX Gaming, the new "crypto-as-a-service" platform will offer an end-to-end solution for gaming studios and publishers to launch their own NFTs & tokens, custodial wallets, trading, compliance & licensing, and more – all white-labeled and in-house.

Why The Big Push For Gaming?
In a sense, gaming and crypto were always the perfect marriage. There are over 2 billion gamers who have played with and collected digital assets (in-game items) and now, largely thanks to NFTs, you can own (and trade) them.

The growth potential of the blockchain gaming category has attracted billions of dollars worth of investments in recent months and continues to be very popular among VCs. Just three months ago, for example, FTX also launched a $100 million blockchain gaming fund along with Solana Ventures and Lightspeed Venture Partners to invest in startups focused on building blockchain gaming studios.

Any Pushback?
You bet. Many gamers (including us in a previous issue) have been skeptical about the incorporation of NFTs in games, viewing the technology as nothing more than an opportunity for publishers to make money rather than make the game more fun for individuals.

But, as Amy Wu points out, there were also naysayers about free-to-play and mobile gaming – two markets that forever changed the face of gaming. “Game studios should be a lot more thoughtful and careful about how to communicate with their player base, especially if you’re taking a beloved game and adding blockchain components to it,” she added.

In Hindsight, It Was Inevitable
Interestingly enough, many thought-leaders in the world of crypto wouldn't be where they are today if it wasn't for gaming...

• Kraken CEO, Jesse Powell, is a former gaming professional at Magic: The Gathering
• Founder of FTX, SBF, is infamous for playing League of Legends while on phone calls
• CryptoKitties, an early pioneer in the adoption of NFTs, was just a game to begin with.

And we'll never forget the legendary tale of Vitalik Buterin creating Ethereum after his beloved World of Warcraft character was hobbled by the developers, awakening him to the "horrors centralized services can bring."

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Justin Sun, an early BTC billionaire just invested over $100 million in it. It's not a new alt coin, NFT, and has nothing to do with blockchain.

Shockingly enough, it's real multimillion-dollar contemporary art.

Sun and certain other crypto bulls love this alternative asset because, like BTC, art's supply is limited but can also decline. In other words, top-tier paintings are non-fungible. This scarcity has caused the prices of some paintings from top tier artists to explode:

Although not guaranteed, here are a few examples:

Picasso’s Marie-Thérès: +1,400% (1998-2021)...
Basquiat’s Skulls: +5,286% (1982-2018)...
Davinci’s Salvador Mundi: +624,999,990% (1958-2017)...

Want more? Good, strap in. Contemporary art prices also outpaced S&P 500 returns by 164%, with little correlation to stocks from 1995 to 2021. That's especially incredible considering the historic bull run over that period.

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 DEEP DIVES 

Stregthening The Reserves

If there was any doubt about the long-term sustainability of stablecoin TerraUSD (UST), the announcement of their $1 billion reserve fund should help clear things up.

The Luna Foundation Guard (LFG) has raised $1 billion through a sale of LUNA, the native token of the Terra blockchain.

The raise, one of the largest in the history of the crypto sector, was led by Jump Crypto and Three Arrows Capital, with Republic Capital, GSR, Tribe Capital, DeFiance Capital, and other unnamed investors participating.

The Backdrop
Without getting into the nitty-gritty details (a deeper explanation can be found here), Terra has set up their stablecoin apart from the rest. Unlike longer-established stablecoins, such as those issued by Tether (USDT) and Circle (USDC), Terra remains pegged to the U.S. dollar through an algorithm. Stablecoins like USDT, on the other hand, are pegged to the U.S. dollar, through cash and cash equivalents.

Furthermore, USDT is centralized, meaning that its issuance and reserve are controlled by a central body known as Tether. However, TerraUSD is decentralized, meaning that there's no single entity responsible for the issuance and reserve.

The Significance
Even though the widespread adoption of TerraUSD continues to strengthen Terra, this week's announcement of a decentralized reserve brings even more to the table.

The $1 billion capital injection will effectively act as a “release valve” for UST redemptions and should provide an additional avenue to maintain the peg in the event of another sharp selloff in crypto markets.

Terra's secondary token, LUNA, is now up more than 1000% in the last year.

About That Bear...

You hate to see it, but Bitcoin bulls currently face a number of headwinds, ranging from dwindling demand on-chain, to over 4.7M BTC held at an unrealized loss.

How much longer will today's bear last? And what comes next?

For these answers, check out the latest piece from Glassnode exploring the recent wave of sell-side energy carried by underwater investors.

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 REGULATORY FRONT 

An $11 billion Mystery May Have Just Been Solved

One of the greatest mysteries in the history of crypto may have just been solved.

In 2016, a previously unknown individual committed the largest theft of ether (ETH) ever, by hacking The DAO for $139 million in ETH or about 5% of all ETH then outstanding. Today, that ETH is worth ~$11 billion.

So began one of the most famous and controversial moments in crypto and, in particular, Ethereum's history in which the network decided to do a hard fork, creating what is today known as Ethereum Classic (ETC).

Who did it was always an unknown... that is until today.

New research by journalist Laura Shin and blockchain analytics firm Chainalysis claims to identify who was behind the theft - former TenX CEO Toby Hoenisch. Now, how they uncovered who was behind the hack is too long of a story to get into in these pages, so we highly suggest checking out Shin's latest writeup for Forbes in which she explains the whole process.

What is interesting to us though was a small line in the writeup in which Shin revealed that Chainalysis was able to unmask the path of the hacker's transactions through bitcoin mixing service, CoinJoin. CoinJoin's entire purpose is to obscure a user's transaction history by mixing their funds with those of other users. Therefore, if Chainalysis was able to break CoinJoin's mixing service, could they do so to other users who engaged in sloppy privacy practices?

As always, the debate rages on about whether or not code is law.

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