08/16/2024 | Press release | Distributed by Public on 08/16/2024 22:17
This week in the newsletter, we write about Democrats' efforts to sway the Harris/Walz campaign on crypto, a surprise change to BitGo's WBTC product, and Apple's opening up of the iPhone's NFC technology.
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Democrats meet to rally crypto support for Harris/Walz. On Wednesday night, a group called "Crypto4Harris" held a virtual town hall on Zoom that saw as many as 1000 concurrent attendees. Most notably, the discussion featured Sen. Chuck Schumer (D-NY), with probably the most newsworthy moment being that Schumer said he will push to pass a crypto bill through the Senate before the end of the year.
Other notable attendees included Sen. Kirsten Gillibrand (D-NY) and Sen. Debbie Stabenow (D-MI). Sheila Warren (CEO of the Crypto Council for Innovation) and Mark Cuban also joined the call. Neither Harris nor Walz joined the call, nor did any senior campaign officials.
Bitcoin, Ethereum, crypto, and blockchain are not fundamentally political networks, systems, or assets. It's true that certain features may naturally appeal to various political factions - more libertarian-leaning people may appreciate the independence from government provided by self-custody, critics of fiat money may appreciate Bitcoin's sound money design, classic American liberals may appreciate the ability to "bank the unbanked" or impossibility of these networks to deplatform or "redline" users, and so on. But at their core, these networks don't really know why people use them, and they should be nonpartisan. Thus, it's logical that members of both parties are interested and constructive on crypto. For America to lead on crypto, it's essential that crypto does not devolve into a purely partisan issue.
However, so far we know very little about the Harris/Walz position on the issue. We can find no instance of either candidate ever mentioning the words crypto, Bitcoin, or blockchain. The campaign has made no public statements or policy positions on the issue. It's not even clear if the Crypto4Harris call was organized with any knowledge of the campaign itself. From unclear and even discriminatory SEC actions, the apparent enactment of Operation Chokepoint 2.0 from banking regulators, or attempts to apply bank-like regulations to software developers and node runners, the current administration and its allies have conducted too many hostile actions too many times to not demand clarity on the Democratic ticket's position.
And there is plenty of reason for crypto holders to be skeptical. Both Bloomberg and the Wall Street Journal reported this week that two key anti-crypto figures from the Biden administration are advising the Harris/Walz campaign, Brian Deese and Bharat Ramamurti (both formerly of the National Economic Council). While Deese and Ramamurti had larger portfolios in the Biden Administration than solely crypto, and crypto probably isn't a very big priority for the campaign as it works to determine a broader economic platform, it's notable that Deese and Ramamurti have played central roles in a variety of anti-crypto Biden administration actions. If these two become central figures in a Harris/Walz administration, and they are left to their own devices, we expect a continued hostile attitude towards crypto. It appears factions on both sides of the crypto issue are jockeying for influence both publicly and behind the scenes for influence with a campaign that hasn't made almost any of its positions public.
It's been reported that Harris will unveil her campaign's economic policy in a Raleigh, NC speech later today. We encourage crypto-focused voters to remain open minded and continue to push Democrats to treat the industry fairly and work towards regulatory frameworks that promote both consumer safety and innovation. Rep. Ritchie Torres (D-NY) appeared on Galaxy Brains this week and serves as a prime example of how Democratic party values can embrace and promote the innovative promise of crypto and blockchain technology. We hope the Harris campaign listens more to Ritchie Torres and Ro Khanna than Brian Deese and Bharat Ramamurti, but for now it's not clear who they are listening to, or if they are listening at all. -Alex Thorn
BitGo, the largest issuer of wrapped Bitcoin (WBTC), created a joint venture with BiT Global to diversify custody operations and cold storage across multiple jurisdictions. BiT Global is a global custody platform with regulated operations based in Hong Kong, registered as a Trust and Company Service Provider (TCSP). BitGo will become a minority owner in a new joint venture with BiT Global, providing "multi-jurisdictional and multi-institutional custody" for the WBTC business. BitGo's new joint venture also includes a strategic partnership with Justin Sun, founder of the Tron network.
After the announcement, MakerDAO's risk management team, Block Analitica Labs, drafted a proposal removing the ability to borrow funds against WBTC collateral. Currently, $466m of WBTC is sitting as collateral on MakerDAO. On Thursday, the vote passed MakerDAO governance, halting new WBTC-backed loans.
Justin Sun is a crypto whale who founded the second largest protocol by TVL, Tron, but questions have often swirled around him and his projects. Large portions of the original Tron whitepaper appeared to be lifted verbatim from the Filecoin/IPFS paper, his involvement with exchange Huobi has led to questions in the past about its solvency, he is being sued by the SEC, and on and on. In response to the backlash BitGo received after their new joint venture announcement, Justin Sun clarified on Twitter that "WBTC is managed by custodial institutions BiT Global and Bitgo; I am merely an advisor for WBTC." He also assured that he will have no control of the private keys to the WBTC reserves and cannot move any BTC reserves. The private keys will be safeguarded using the same BitGo cold wallet and offline key framework. Despite these denials from Sun and BitGo, MakerDAO's negative view on WBTC's outlook is creating a market opportunity for alternative wrapped Bitcoin issuers.
While WBTC dominates a large share of the wrapped bitcoin market, the opportunity for a new wrapped bitcoin product is clear. Shortly after BigGo's joint venture announcement, Coinbase announced their plans to launch a wrapped Bitcoin product. Coinbase is expected to rollout a wrapped Bitcoin bridge for cbBTC that will be issued on Base, Coinbase's Optimistic Layer-2 Rollup. With Coinbase already custodying Bitcoin for major financial institutions with spot ETFs, the exchange's reputable track record in the custody business could motivate existing clients to use bridged bitcoin.
Coinbase's introduction of cbBTC on Base could spur other exchanges to follow suit, potentially leading to a rapid expansion of the wrapped BTC market and increased use of bitcoin in DeFi ecosystems. Such an expansion could apply pressure on EVM compatible Bitcoin L2s, which all have their own version of bridged bitcoin, though cbBTC's role in educating the market on Bitcoin DeFi will help all players. Nonetheless, new wrapped Bitcoin products will continue to push Bitcoin L2 and DeFi projects while also accelerating the development for alternative (and decentralized?) versions of wrapped bitcoin. - Gabe Parker
Apple to allow third parties to access NFC payment chip on iPhones. After facing pressure from regulators for years, Apple announced on Wednesday that it will allow third-party developers to access the NFC (near-field communication) payment chip and Secure Element APIs on Apple devices. Apple previously cited security concerns for its reluctance to open access to the chip. Some of the potential use cases enabled by the move included in Apple's announcement post are "in-store payments, transit system fares, work badges, home and hotel keys, and reward cards. Support for government identification cards will come later."
To incorporate this new solution, developers will still need to enter into a commercial agreement with Apple and pay the associated fees. Apple noted that only "authorized developers who meet certain industry and regulatory requirements and commit to Apple's ongoing security and privacy standards" can access the system. Apple plans to roll out the program with its upcoming iOS 18.1 software update starting in Australia, Brazil, Canada, Japan, New Zealand, the US and UK (EU was not mentioned).
In response to the announcement, Circle CEO Jeremy Allaire tweeted, "Tap to pay using USDC on iPhones incoming soon. Wallet devs, start your engines." He later clarified in a separate tweet that: (i) Circle has no relationship with Apple, (ii) opening up this capability enables crypto wallets to invoke NFC for transactions, (iii) if a iOS wallet that supports USDC enables this, they could enable a UX where a receiving device (like a Point-of-Sale, or another iOS device) could receive the transaction info via a tap, and (iv) this would allow a PoS to tell an iPhone what blockchain address it will accept USDC on, or the amount to pay, and then the iPhone-based wallet app could prompt the user to confirm a payment (like with FaceID) and initiate a transaction over the blockchain to settle the USDC.
Apple opening up its NFC payment chip could be a huge unlock for crypto adoption, especially for consumer in-store spending in the US. Apple Pay has an estimated 640m active users globally, is used in 60% of digital wallet transactions for in-store purchases, and has become the preferred method of payment especially for younger generations. It has become one of the fastest growing digital payment methods due to its simplicity, integration with iOS devices, wide adoption, and its security and privacy including biometric authentication with Face ID.
Crypto-based mobile payments have seen limited adoption not just due to lack of product offerings and merchant integrations, but also because Americans have been relatively slow to adopt QR codes for digital wallet payments compared to people in India and China. Importantly, crypto-based payment options through Apple Pay would not require any consumer behavioral change for those that prefer to use tap-to-pay including for crypto. We highlighted commerce payments in our Crypto Use Cases presentation, which features mainstream payment service providers integrations (e.g., PayPal, Square, Stripe, Shopify), Solana Pay and Visa's USDC settlement capabilities.
Outside of just commerce payments, other crypto use cases that would benefit from access to Apple's payment chip and secure enclave include rewards/loyalty programs based on in-person check-ins (like Blackbird), NFT-based ticketing for events access, and information sharing through other nearby devices with verifiable credentials. Note that for all these mentioned use cases, NFC isn't a prerequisite but it enables meaningful improvements for crypto to connect with real-world interfaces, which addresses the some of the UX challenges with on-ramping. Assuming crypto wallet developers meet the requirements for Apple to enter into commercial agreements with (still far from certain), this move could significantly accelerate crypto adoption. - Charles Yu
On August 9, 2024 BitGo announced a strategic partnership with BiTGlobal to diversify custody operations and cold storage across multiple jurisdictions. The venture includes a partnership with Justin Sun, which raised concern around wrapped bitcoin (WBTC). Despite the concern, the supply of WBTC remained steady, with only 474.5 WBTC being net burned since BitGo's announcement. This represents a 0.31% decline from 154,727 WBTC on the day of the announcement to 154,252 WBTC as of August 15, 2024. At more than 154k BTC, WBTC is one of the largest single stockpiles of Bitcoin in the world.
WBTC/BTC cex volumes were elevated from the average daily volume seen from June 1, 2024 to early August on the day of the announcement. However, panic across markets generally, as noted on August 5, 2024, could be a contributor to the elevated volume. A noteworthy point around WBTC/BTC cex volumes on the day of the announcement is the prominence of Coinbase. On the day of the announcement, 29% of WBTC/BTC cex volume across the observed exchanges came from Coinbase. This compares to an average of just 5% in the two-month period leading into the announcement.
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