In this week’s edition of The Context, Bitcoin is looking up, Gemini is staring down a lawsuit, and Scroll recovers.
[Crypto Winter Is Coming Over? 💐]
Bitcoin surged from under $30,000 on Sunday to nearly $35,000 on Tuesday, hitting its highest point in almost 18 months. 📈
What Journalists Said 🧑💻:
What’s going on? Three letters, said Tom Wilson and Tom Westbrook (Reuters): ETF. “An exchange-traded fund (ETF) that owns bitcoin on behalf of fund investors is predicted to fuel demand.” Hopes for an ETF got a boost after BlackRock’s proposed fund was mysteriously listed on the DTCC clearing house’s website and an appeals court rejected the SEC’s rejection of Grayscale’s ETF application.
An ETF could indeed be huge, reported Sam Reynolds (CoinDesk). Analytics firm CryptoQuant predicted last week before the price rise that approval would grow the entire crypto market by $1 trillion, with Bitcoin hitting a $900 billion market cap.
A rising Bitcoin lifts all boats—but it lifts Bitcoin most of all. 🚣♂️ BTC’s recent “activity has sent the asset’s dominance, or total share of the market, to a two-and-a-half-year high, of around 54%,” noted Sebastian Sinclair (Blockworks).
Why It Matters ⁉️:
As has been apparent in the past, one bad actor in the crypto space is enough to sour the entire industry in the eyes of public opinion. Could this single vote of confidence help crypto turn its image around? Maybe! By approving a Bitcoin spot ETF, US regulators would legitimize an asset class that has been long viewed with scepticism and because Bitcoin is an industry leader, this could lead to greater adoption, more liquidity, and market growth for all of crypto.
[Scroll Up 📜]
The total value locked into Scroll’s new Ethereum layer-2 network went from $500,000 last week to $16 million this week, according to data from L2Beat.
What Journalists Said 🧑💻:
Last week, the story on Scroll was “poor adoption.” zkEVM rollups like Scroll are supposed to help Ethereum handle more transactions and improve upon other scaling networks. But within a week of launching, it had just $700,000 in deposits from 720 wallets. “Although the stealthy nature of Scroll’s launch may be hindering its early adoption, its debuting performance falls short of expectations,” wrote Samuel Haig (The Defiant) on October 16.
Oddly, Scroll didn’t confirm its mainnet had launched until October 17, wrote Samyuktha Sriram (Unchained)—nine days after block explorer data showed it going live.
That announcement helped its numbers start to grow, wrote The Defiant. But early sluggishness may not be random: While Scroll was one of the first teams working on layer-2 rollups with zero-knowledge proofs, it was “slow to ship its mainnet.” ZkSync Era, Polygon ZkEVM, and Consensys’s Linea all beat it to market. 🚢
PR Perspective 💭:
Scroll went live at an inopportune time—the same weekend Hamas attacked Israel. With mainstream media focused on the conflict and crypto narratives firmly shifted to ETFs, Scroll’s modest recovery hasn’t attracted media attention. Scroll’s alpha testnet initially went live in July 2022 for reference, and going live only last week strongly suggests much of their momentum from last year was lost, combined with a more competitive news cycle as of recent.
[New York AG Suits Up 👔]
The New York Attorney General has sued Winklevoss-owned crypto exchange Gemini, institutional trading firm Genesis, and Genesis parent company Digital Currency Group for allegedly defrauding investors of over $1 billion.
What Journalists Said🧑💻:
This all started with a partnership gone sour, explained Shaurya Malwa (CoinDesk). 🍋 “Gemini lent funds to Genesis, which is owned by DCG, as part of its Earn program, the suit said. The funds were later lent to counterparties such as trading firms Three Arrows Capital and Alameda Research, which ultimately went bankrupt. This left Genesis with a $1.1 billion hole.” 🕳️
While Gemini and DCG have been pointing fingers at each other for months, 👉 the attorney general “took aim at both sides, claiming there were two fraudulent schemes,” wrote Tim Copeland (The Block). Gemini told the public that Earn funds were highly liquid while DCG and Genesis "’disguised $1.1 billion in losses through a months-long campaign of misstatements, omissions, and concealment.’”
Some of the details look pretty bad. Crystal Kim (Axios) summarized: “Gemini allegedly knew Genesis' loans were undersecured and that its loans were highly concentrated in one firm, Bankman-Fried's Alameda Research.” Not only that, but the suit also contends that after “Gemini revised Genesis' credit rating from investment grade (BBB) to junk (CCC), ‘it continued to market Earn as low-risk’ and didn't disclose the change to its customers.”
Why It Matters ⁉️:
The aftershocks of FTX’s downfall are still being felt. And if DCG and Gemini are kicked out of New York, as the attorney general is pushing for, more crypto companies owned by Digital Currency Group or with ties to the Winklevoss twins could be impacted. Whilst firms’ activities being restricted in New York isn’t anything new, this will continue to build on the legal precedent being developed in the US which will hopefully result in a more active market as it becomes clearer to firms on how they should market some of their products.
[Tweet of the week]
Credit: @alancarroII
[DeFi Definitions]
A segment exploring one particular aspect of DeFi.
This week: “Vampire Attack” by Tiffany Mac Sherry.
In the realm of cryptocurrency, a "vampire attack" is a cunning strategy employed by one blockchain or decentralized project to siphon users and liquidity away from another.
Here's how it works: First, the attacker identifies a target project and creates a new project. The attacker enhances the new project with alluring incentives, like higher yields, lower fees, or enticing token rewards, which beckon users and liquidity away from the target. As a result, the target project can suffer a loss in activity, liquidity, and value.
One of the most famous vampire attacks in the DeFi space was when SushiSwap executed a vampire attack on Uniswap in 2020. Sushi Swap lured over $1 billion in liquidity within a week by incentivizing Uniswap's liquidity providers to migrate to its platform, offering attractive rewards in SUSHI tokens.
The usual disclaimer: This newsletter collates the main themes and headlines of the week in DeFi/crypto/metaverse/Web3/NFT land and tries to provide unbiased context. It's aimed at anyone who wants to keep an eye on the space. It's put together by a team at YAP and doesn't contain any promotion of our clients (if one is mentioned, we'll flag that).
The team: Founder Samantha Yap and consulting editor Jeff Benson, Sam O'Donohoe, Ewan Brewster, Damian Alvarez, Andrew Wickerson, Tiffany Mac Sherry, Becky Corbel and Delon Chan. Your feedback is, as always, welcome. Ping us at thecontext@yapglobal.com. Old newsletters can be found here.
This newsletter is prepared by YAP Global, an international P.R. Consultancy focusing on helping cryptocurrency, Decentralised Finance (DeFi) and Web3 brands through impactful storytelling. Find out more about us here.