March 2, 2022 | Issue #210

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Crypto + Ukraine (Part 1)

Before we dive in, we first wanted to express our sorrow for what is occurring in the world right now. Your faithful CoinSnacks writers have spent weeks in Ukraine exploring its cities, people, and underrated startup culture. We met with Ukrainians and Russians alike, sharing tea and borscht on a train from Kyiv to Lviv. And now, as we sit safely writing this letter in the U.S., those citizens across the map are fleeing their homes or picking up arms to fight for their lives. Here, our words fall short. In war, one side may win, but humanity loses.

There's no need for an introduction into what's happening – all eyes are on Russia’s invasion of Ukraine. But to keep things on topic, let's discuss its immediate impact on what you read this letter for – crypto.

Price Action
Following initial reports of Russia's invasion on February 24th, BTC dropped from $37k to as low as $34k. But less than 24 hours later BTC regained its previous price and began to move up to its highest level in weeks. Most other crypto assets also followed a similar pattern. For example, ETH initially crashed on the news of the invasion but finished the day in the green.

Why The Jump?
Nobody knows exactly why crypto is up, but the current theory is that financial sanctions against Russia are driving awareness of the benefits of crypto. Furthermore, with many Ukrainian and Russian citizens unable to rely on their traditional banks, it's safe to assume they are using crypto to preserve their savings. There's some proof in the pudding, too. According to CoinMetrics, crypto exchange transaction volumes have surged for both the ruble and hryvnia.

A shift in macroeconomic expectations also likely played a partial role as the whole world watches these fear-driven events unfold. After all, there's a reason why the demand for gold is increasing as well.

A Win For Crypto?
Now we won't go as far as to say that anyone is winning. War is war. It's never a good thing. What we can say, however, is that the recent decoupling from the S&P and the NASDAQ has so far strengthened BTCs use case as an attractive safe-haven asset, particularly in times of conflict.

Data from CoinMetrics shows when comparing the S&P 500 and BTC, the two hit their highest correlation on February 22 before taking a steep tumble through the week. Since then, BTC has enjoyed a ~20% rise. Conversely, traditional markets have not fared nearly as well.

Donations Are On The Rise
According to Decrypt, the Ukrainian government has so far received $20 million in BTC and ETH donations combined. Since the invasion, we've also seen a slew of fundraising in the form of DAOs, growth hacking techniques, and shared wallet addresses that go way beyond just BTC and ETH. Some even suggest that the global crypto community has funded Ukraine more than the United Nations.

Ukraine also set crypto Twitter abuzz with the promise of an airdrop, although no further details or information has been provided.

Going Forward
For what it's worth, this is likely just the beginning. There's no telling what happens next. Another unprecedented event could very well send crypto (and traditional) markets in a free fall. In the meantime, it'll be interesting to keep tabs on crypto adoption, BTC fundamentals and its core use cases (the hedge from fiat), the power of community ethos, and the ongoing regulatory actions, particularly with exchanges (see Part 2 below).

A historic moment – a litmus test in many ways – for BTC and the greater crypto community is upon us.

Coinbase Earnings

Last week, we previewed Coinbase's (COIN) Q4 earnings, while making some predictions along the way. Now that the company has officially reported, let's take a look at how the largest public crypto company did...

By The Numbers
Coinbase Q4 2021 revenue was $2.5 billion, meaningfully higher than the $585 million from the same quarter in 2020. The increase in revenue led to net income of $840 million, up from $177 million in the prior period.

Why It Matters
The Street expected Coinbase to report $1.94 billion in revenues, so the more than $500 million revenue beat absolutely crushed expectations. This is leading some to realize just how difficult it is to predict the company's revenue, regardless of the fact that the data is public. We should note that although the Street's prediction was $1.94 billion, estimates were rather wide ranging from $1.19 billion to $2.44 billion.

And The Stock Went Up, Right?
Nope. The earnings beat did little work for the share price. After the release, the stock actually tumbled down to around its all-time low. Although the company had amazing Q4 results, Coinbase stated they expect monthly transacting users and trading volume to decline in Q1, with an expected total trading volume of $200B (down from $550B in Q4 2021). Additionally, the exchange expects lower subscriptions and services revenues in the upcoming quarter, with the overall top-line expected to dip in 2022 as a result.

What Else?
Trading from institutional investors is significantly rising and is more than double the trading from retail. Despite the higher trading volumes though, Coinbase only generated $90 million in revenue from institutional trading, compared to $2 billion from retail investing last quarter.

It's also now obvious that Bitcoin’s era of dominance in terms of trading volume and trading revenue generation at Coinbase is clearly over. Bitcoin has gone from 38% of the company's trading volume to 16% over the past year, while other crypto assets rose from 48% to 68%.

Further Reading: SBFs quarterly breakdown of Coinbase earnings

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Electric Capital Raises $1 Billion To Invest In Crypto Startups

Venture firm, Electric Capital, who is well known for their annual Developer Report has announced the raise of $1 billion to invest in crypto startups.

The total includes a previously unannounced $400 million fund closed last year that makes equity and token investments, plus a $600 million fund closed last month to make token-only purchases. Prior to these, Electric raised just $125 million in two other funds.

This $1 billion marks the largest crypto-specific fund raised so far this year and is a large percentage of the ~$8 billion raised by funds to invest specifically in crypto since January 1st.

The fund will write $1 to $25 million checks towards DAOs, NFTs, DeFi, decentralized infrastructure, and novel crypto-native user experiences.

One of Electric’s best investments to date was in Near Protocol (NEAR), where the fund's $500,000 bet is now worth more than $60 million, and Electric’s total stake in Near is in the “low hundreds of millions.”

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 REGULATORY FRONT 

Crypto + Ukraine (Part 2)

With Russia barred from accessing its foreign reserves, and some of its banks kicked off SWIFT, attention has turned to cryptocurrency as a possible platform for evading sanctions.

As a result, crypto exchanges are starting to feel the political pressure.

Request 1:
The White House’s National Security Council and Treasury Department have asked major crypto exchanges to help cut off access to sanctioned entities and individuals.

General Exchange Response: "Uhm, well, we've already been doing that. OFAC list has been banned since day 1."

Request 2:
Ukrainian regulators, on the other hand, have asked major crypto exchanges to go beyond what's required by sanctions – and block the addresses of all Russian users.

General Exchange Response: "Respectfully, no."

Major exchanges such as Binance, Coinbase, and Kraken quickly turned down the request made by Ukraine. Blanket bans on all Russia-based addresses, as Jesse Powell eloquently explains here, goes against their core beliefs and would unfairly hurt innocent Russian nationals.

Putting It All Together
Sanctions are increasingly isolating Russia from the global financial system. Transacting in crypto could be a powerful workaround – but experts say the crypto market lacks the scale and the privacy to materially aid Russia's war effort.

ConsenSys Faces Multi-Billion Dollar Audit as Shareholders Claim Board Breaches Fiduciary Duties

ConsenSys, the Ethereum developer that oversees the cryptocurrency wallet, MetaMask, which recently raised $200 million at a $3.2 billion valuation, is facing allegations that its founder illegally shifted valuable assets to a new company.

A group of thirty-five former employees representing more than 50% of all known ConsenSys shareholders filed a request for a special audit to investigate the company and its founder, Joseph Lubin.

The claim is that in August 2020, intellectual property and subsidiaries were illegally transferred from ConsenSys AG (CAG) into a new entity, ConsenSys Software Incorporated (CSI). This was in exchange for 10% ownership of CSI and an offset of a $39 million loan by founder Joseph Lubin.

The former employees claim that the transaction, internally code-named Project North Star, resulted in companies such as JPMorgan Chase acquiring an influential stake in MetaMask and Infura, which are two of the most widely used infrastructure tools in Ethereum. MetaMask alone has more than 20 million monthly users.

This comes on the heels of a completely different lawsuit against ConsenSys with a lot of salacious back and forth allegations.

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