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The Jamie Dimon Crypto Shuffle I Fake News, But From The SEC, And The Grand Finale

Cleanspark miner acquisition | Visa web3 loyalty program | Restaking and leverage in the system

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Decential Media
January 12, 2024

Decential Media
A weekly recap of the most insightful news, analysis, and capital flows in the wild west we call crypto.

Hello and welcome back to the Web3 Rewind! Per usual in this industry, lots has happened this past week. Here's what we have in store for you:

  • Really, Jamie?

  • BTC shenanigans

  • Starknet alpha upgrade

  • Cleanspark miner acquisition

  • Visa web3 loyalty program

  • Restaking and leverage in the system

Hey Everyone! We have a new email newsletter called The Beat that can be delivered straight to your inbox with all the latest about where music meets web3. You can subscribe here.

The Latest

The Jamie Dimon crypto shuffle

source: Bloomberg

“I’ve always been deeply opposed to crypto, bitcoin, etc.,” Jamie Dimon, chief executive of the largest U.S. bank, JPMorgan Chase & Co, said in Senate testimony last month. “The only true use case for it is criminals, drug traffickers … money laundering, tax avoidance.” He went on, “if I was the government, I’d close it down.”

I’m a bit late to this party, yet the deep absurdity of Dimon’s statement has taken me a while to understand. Let’s juxtapose this with the biggest story in crypto at the moment, the approval this week  of a Bitcoin exchange-traded fund by the U.S. Securities and Exchange Commission. A decade in the making, the decision needed federal court intervention to force sense into the glued-plywood apparatus SEC Chairman Gary Gensler calls a head. Since JPMorgan so hates crypto, as its CEO plainly says, it wouldn’t have any involvement in this BTC ETF, right?

You wish. The bank was chosen by ETF behemoth BlackRock to be one of its agents that buy and sell all the Bitcoin that represents the value of the ETF. JPMorgan will be what’s called an authorized participant, which is vital to the operation of any ETF. For this noble undertaking JPM has graciously taken on, it makes money from the difference in the price to buy and sell Bitcoin. Like prostitution, much of Wall Street is paid by the spread. It also gives JPM a very powerful position in the Bitcoin spot market as a quasi-government backed entity, a massive player that always needs to trade.

So this is the Bitcoin angle the suits at 270 Park Ave. have devised for the bank. When it comes to Ethereum, JPMorgan has long been a powerful and early advocate of the smart-contract platform. A founding member of the Enterprise Ethereum Alliance, JPM has picked extremely capable blockchain heads in the past with Amber Baldet and then Christine Moy. The bank decided to copy Ethereum for its internal blockchain with a special second layer of privacy added on to ensure client confidentiality.

It developed JPM Coin, a digital representation of its internal capital that it’s been using internally and with customers for years now. Umar Farooq, the bank’s global head of financial institution payments and the dude who hired both Baldet and Moy for their blockchain work for the bank, said in November that JPM Coin could hit $10 billion in daily volume in the next year or two.

And then we get into the real weeds, where the bank headed by the dude who hates crypto pioneered a digital asset version of the overnight funding market, using JPM Coin as the crypto stand-in for the U.S. dollar. Here’s how I reported on it for Bloomberg in 2020:

“JPMorgan Chase & Co. is using its custom blockchain to conduct intraday repurchase agreements totaling billions of dollars, an advance that’s helped persuade Goldman Sachs Group Inc. to join the new digital market early next year.”

Have you heard of Goldman Sachs? Yeah, they’re peachy, too.

But Jamie Dimon, sitting before Senator Elizabeth Warren during a Senate Banking Committee hearing, says the government should nuke it all. The banks, and not just JPM, will take what they want from decentralized tech and remake markets at their will, like with overnight repos. It also makes sense for them to antagonize developments like blockchain payment rails that entirely bypass their system. On this front the banks must always be fought. That means decoding Dimon’s sentiments for what they are – unabashed pandering to one of the most willfully ignorant officials on the topic, Sen. Warren. Look to the money to know what JPM wants, not what its chief says, and don’t turn your back on Wall St. for a second. – Matthew Leising, editor in chief, Decential Media

Gary almost rugged us dept.

BTC ETF Shenanigans

In a hilarious sequence of events, on Tuesday, the official SEC account tweeted that all spot BTC ETFs had been approved. With the announcement, crypto Twitter collectively erupted in celebration. However, a few keen-eyed individuals realized that the SEC account had liked a few random tweets from random accounts. What gives? While everyone wanted to continue celebrating, suspicions slowly grew that the SEC’s Twitter account had been hacked. But then, one would think, no way that the SEC let their Twitter get hacked at such a pivotal and important moment, right?

Alas, Gary crushed our dreams once more, publishing a tweet that stated the SEC Twitter account was compromised and that the SEC has not approved the listing and trading of spot Bitcoin exchange-traded products. Once again, Gary gets the last laugh.

Individuals started digging through the SEC’s old tweets, and there are a few ironic gems in there. How about this one that states “Careful what you read on the internet. The best source of information about the SEC is the SEC.” I guess that obviously isn’t true. Or what about this one, where Gary reminds us all to secure your financial accounts as well as protect against identity theft and fraud. All while SEC’s own Twitter account didn’t have 2FA enabled. Evidently, the SEC should’ve secured their own Twitter account first.

There are a few conspiracy theories that are floating out there. Could the tweet have been scheduled already? And after a hacker managed to gain access to the account, they simply decided to tweet the draft prematurely. Or could an intern at the SEC have messed up and scheduled the tweet for the wrong date, and as a result, the SEC says they got hacked? Or the wildest one, could Gary have been trying to prove just how manipulatable crypto markets are? I don’t think the last one applies to only crypto. For example, in 2022, the stock of Eli Lilly, a pharmaceutical company, dropped 6% after someone made a Twitter account with their company name and said that the company would be offering free insulin.

According to some journalists, the SEC Twitter account hack would’ve violated new SEC rules adopted in July that require a high level of “cyber security risk management.” As an investor, I am once again feeling very protected. Thank you SEC. However, all is well. On Wednesday afternoon, after much drama, we finally got the spot BTC ETF approvals we all wanted, with all 12 proposals being greenlit. Following the approval, the ETFs quickly began trading on regulated exchanges. So what’s next? The AUM wars have begun, and if recent days are any indication, it’s about to get explosive. Time for crypto to move onto the ETH ETF narrative. — JC

Quick Bits

Starknet Alpha upgrade (token)

  • The Starknet community voted to implement the latest version of Starknet Alpha, v0.13.0. The upgrade includes a new transaction version, v3, that will facilitate a significant reduction in transaction fees. 

  • Importantly, the upgrade includes the ability for users to pay transaction fees in both STRK or ETH, paving the way for the eventual airdrop of the STRK token.

CleanSpark miners

  • On Monday, CleanSpark, one of the larger Bitcoin miners, announced a strategic agreement for up to 160,000 Bitmain S21 miners. If executed in its entirety, that would 5x CleanSpark’s mining capacity from ~10 EH/s to 50 EH/s.

  • The agreement includes a strategic call option to purchase an additional 100,000 machines at a fixed price, which is a fantastic deal considering Bitcoin mining machines normally skyrocket in price during a bull market.

Visa web 3 loyalty rewards partnership

  • Visa has launched a web3 loyalty program. With gamified giveaways, immersive treasure hunts, and customized web3 experiences, Visa could be paving the way for more crypto-enabled loyalty programs.

  • The case for web3 loyalty programs outlined by Visa is that loyalty programs powered by digital collectibles deliver value beyond points and mileage. The key functionality here is that these benefits are earnable, redeemable, and transferrable, something that web2 companies are likely hesitant to offer.

And last but not least

Restaking, leverage in the system

EigenLayer is a re-staking protocol for Ethereum. What does that even mean? Ethereum is a proof-of-stake blockchain. This means that ETH holders stake their ETH in order to provide crypto-economic security to the network. Staking your ETH can be thought of similarly to providing collateral. In this case, validators need a minimum amount of collateral to be a part of the blockchain, voting on various things, such as what the next block of the blockchain will be. What’s the point of requiring that collateral in ETH? So that if a validator ever acts maliciously — for example, if they try to include some invalid transactions or sign two different blocks simultaneously — they lose some of the ETH that was provided as collateral; it’s destroyed in fact. As a result, there is an economic cost to attacking Ethereum, you will lose collateral in trying to do so.

So, recall — EigenLayer is a re-staking protocol for Ethereum. That means that the ETH that validators are using as collateral, can now be used as collateral for other transactions. These could be bridges, oracles, data availability layers, or an entire variety of middleware and infrastructure.

So, are we introducing leverage to Ethereum? Surely, we don’t want to make the mistake that brings down companies and global economies every so often. Not exactly. For starters, when slashing events occur, you normally don’t lose your entire collateral. For example, if you did something very malicious on Ethereum, at worst, you would probably only get slashed 4 ETH out of the minimum 32 ETH validator balance. And thus, if you are re-staking on EigenLayer and helping to “secure” multiple networks/protocols, everything is all fine and dandy if the total slashable amount across everything is less than the total amount of collateral provided. What if the total slashable amount is more than the total amount of collateral provided? Well, the probability of multiple protocols getting slashed simultaneously is pretty slim, ensuring that the probabilistic leverage in the system really isn’t that high. But we’ve seen what happens when everyone slowly but surely chases higher returns and yields, and we all know, the outcome isn’t always pretty. — JC

Have you read the definitive history of Ethereum? No? Well then get your copy of Out of the Ether while you can.