Lars Seier Christensen

The last two years have been pretty turbulent in the world of cryptocurrencies and blockchain.&nbsp;



Nevertheless, crypto natives and speculators are confident that the crypto winter will soon be over, bringing us broad-based rally and new all-time highs.



The general perception among committed enthusiasts is that the stage for this new bull market to unfold is already set. It could be the <a href="https://blockworks.co/news/anniversary-of-2016-btc-halving" target="_blank" rel="noreferrer noopener">Bitcoin halving</a> in 2024 that triggers it, or it could simply be the market forming a basis for a new rally.&nbsp;



The consensus among many is that the crypto market will make a comeback.&nbsp;



Well, I have bad news.&nbsp;



This new rally? Not going to happen.



<h2 class="wp-block-heading">History repeats</h2>



I can say this pessimistic outlook is true, because history repeats itself.&nbsp;



The period before this <a href="https://blockworks.co/tag/crypto-winter" target="_blank" rel="noreferrer noopener">crypto winter</a> — during which the value of so many companies and services were grossly inflated, irrespective of their quality or business case — reminds me a lot of what transpired with the internet bubble and the subsequent dotcom crash. Having established Saxo Bank back in 1992, we saw first hand the rise and fall of some of these more frivolous entities and subsequently, the ones that pulled through.



After the crash in 2001, the market did indeed bounce back. The internet sector not only lept to new heights, but became the primary driver of the economy for many years to come.



Perhaps unsurprisingly, the companies that initially introduced the internet to the world were not the ones that saw it reach its apex. Aside from a handful of exceptions, the vast majority were consigned to the annals of history — and for the most part, deserved to be.



Some companies did enter the crash with solid business models and came out even stronger, despite suffering from massive mark-downs in value. Amazon, whose stock fell <a href="https://simplywall.st/article/are-we-in-another-dotcom-bust#:~:text=Here's%20Amazon's%20share%20price%20from%201998%20to%202011%20(split%20adjusted).&amp;text=The%20price%20peaked%20at%20a,peak%20price%20until%20October%202009.">95%</a> when the internet bubble burst, came back to rule the world of online marketplaces because it had the right idea, and possibly foresight, all along.



We will see the same happen again with crypto. Blockchain will find an important place in the future economy and have major transformative potential.&nbsp;



But it will be the blockchains and the projects that are suitable for that future that will drive it forward. The future calls for regulated, industrial-scale blockchain use cases, not the silly and speculative applications we have seen in numerous cases today: The applications which have in many cases contaminated the space until now. These have negatively influenced public perception and distracted from the very real benefits of blockchain technology.&nbsp;



<h2 class="wp-block-heading">Application over speculation</h2>



The projects that will drive the next rally will be projects that support compliance, not avoid it.&nbsp;



Projects that will focus on adding real value to data security, processes and privacy protection. Projects that enable the tokenization of real-world assets, provide trust between actors and cut out inefficient middlemen and single points of failure in the economy as we know it today.&nbsp;



There is no reason to blindly believe that earlier projects driven by speculation and hype will come out swinging again after the current crisis. Funding for them has dried up and the retail user is unlikely to jump on the same bandwagon again, especially considering the newly arisen trust issues.&nbsp;



<h2 class="wp-block-heading">A still-maturing industry</h2>



The way forward now for the blockchain industry must be all about growing up and finding a stable footing. The <a href="https://www.reuters.com/business/finance/cryptos-string-bankruptcies-2023-01-20/">mistakes</a> have been made, and the cul-de-sacs have been tested.



Projects that fail will not get a second chance. Success will come to those who bring added value to our existing, fragile and often untrustworthy ways of doing business, while respecting compliance and regulation.&nbsp;



My money is on tokenization, logistics, data security, self-sovereign IDs and privacy functions, provided they are regulatory compliant. These will bolster current business processes, as opposed to developing businesses themselves. This technology essentially provides the infrastructure for the economy of the future, which is exciting enough in itself and warrants serious attention from investors and entrepreneurs.



The winners of this next stage will mostly be projects that are not at the top of CoinMarketCap today. History has shown that these transitions happen as a near certainty, and I am sure it will happen again. Look out for projects and blockchains that support that transition rather than those who already had their time in the sun. History repeats itself.



Although there won’t be a crypto market rally like many hope, there will eventually be a blockchain industry rally in the future.&nbsp;



But it will be spearheaded by the few existing projects that had the right idea all along — in addition to entirely new projects that have learned from the mistakes of the earlier generations, adapted, and established a clear innovative path beyond seeking short-term value based on fads.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Lars Seier Christensen is the Chairman &amp; Founder of Concordium, a layer 1 blockchain. In addition, he is the founder and owner of Seier Capital. Prior to these roles, Lars was the co-founder and co-CEO of Saxo Bank for over 20 years, an investment firm providing the leading online trading platform connecting investors and traders to global financial markets. Saxo Bank services over 1 million customers with $12 billion in daily turnover.</div>


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Stop waiting: No crypto rally is coming

Drew Mailen

The cryptocurrency market is no stranger to volatility, with rapid gains and abrupt drops becoming the norm. However, the Web3 market in 2023 has experienced more than its fair share of turbulence. Those committed to the industry are now facing the challenge of explaining how the actions of certain actors do not align with the core values of the technology.&nbsp;



<h3 class="wp-block-heading">Staying with the fundamentals</h3>



The phrase, ‘don’t trust, but verify’ is a reminder that the open source blockchain is built to empower people.&nbsp; Yet this runs deeper than users simply owning their own keys. The industry is still attracted to the promise of unrealistic yields, creating unsustainable leverage and price speculation that is not representative of the underlying technology and its value. Real protocol yields, however, have endured the storm.&nbsp;



Blockchain infrastructure companies such as Allnodes have demonstrated that a core dedication to the technology and its efficiency of automation can help users and institutions make the most of this market and survive the crypto winter. They provide access to real protocol yield while also being non-custodial, users always have control over their funds – with the added benefit of participating in protocol governance. 



<h3 class="wp-block-heading">Weathering the storm</h3>



Agility is one of the most important factors to surviving the current market. Besides being over-leveraged many companies scaled too quickly during the bull market, and are now facing a trap in the bear. A primary driver behind this trend is the belief that employment growth automatically equals success and that demand was always going to increase at a steady rate. It leads companies to focus on fundraising,&nbsp; growing their headcount and administering the business rather than a focus on the fundamental technology.&nbsp;



As a result, companies with that business model tend to get stuck with bloated overhead. For decades, research on a global level has supported this theory. Scaling in the crypto industry during the last 2 years witnessed an enormous inflow of investor funds. In “The Timing of VC Investments and the Employee Growth of Startups” (Roy van der Loos, 2019), a positive correlation was found in Britain, where startups indicated a higher growth around financing events. But in Web3, if the protocol does most of the work, and the rest can be automated by relying on smart contracts and dApps, do the same Web2 growth rules apply? The likelihood that the same principles apply is extremely slim if adoption is the watermark.



<a href="https://www.allnodes.com/stake" target="_blank" rel="noreferrer noopener">Allnodes</a>, a non-custodial staking provider, has proven that Web3 doesn’t need to follow the same growth model as Web 2.  They oversee a substantial amount of blockchain infrastructure with over 33k nodes supporting 65+ different protocols, but with just under 15 employees they still maintain one of the highest ratings compared to other staking and node operators.



How is this possible with a team of fewer than 15 employees? What’s the secret? Blockworks sat down with <a href="https://www.allnodes.com/stake">Allnodes’</a> Robert Ellison to find out.



“Our performance speaks for itself, however don’t take my word for it, you can visit a site like <a href="https://www.rated.network/" target="_blank" rel="noreferrer noopener">rated.network</a> and view a breakdown of effectiveness ratings for ETH,” said Ellison.



<img loading="lazy" decoding="async" width="624" height="337" src="https://lh5.googleusercontent.com/WCOE3FkmMLzjKPHyeV-Cn2EnaiOVEV-baL9MQvV7UmNVT4T4lw-nGmPr3GM2cUsH-0YWPpPGg9LjwJdoSjaU1pbedOq2YZ67CSzt_SML_3yELz8pkJgTXXHYxwAqkIzefp7__Woge5Py7POz41fF6g4u3d-eAZcnRNcehh3rdHVPuW2cEbh5j4RxTfIquA"> Figure A: <a href="https://www.rated.network/?network=mainnet&amp;view=nodeOperator" target="_blank" rel="noreferrer noopener">Rated. Network</a> Node Operator Effectiveness Rating 



Allnodes credits its success to a low headcount, agile development, and its engineering team’s efficiency. 



“Blockchains are very resilient and decentralized, but they are also complex so we’ve automated management and onboarding into our tech stack from day one. We have exceptional engineers that allow us to be very efficient and scale on demand while also monitoring our infra to ensure everything is healthy.  Our primary goal is for managing and optimizing staking and running nodes for clients to be as simple and straightforward as possible, this encourages adoption and use,” said Ellison.  



The team also credits its success to limited red tape and efficiency.



“We have less hoops to jump through from an administrative and corporate structure. It’s not perfect, we have a backlog and roadblocks when it comes to development and onboarding and sometimes it is hard to figure out what to prioritize,” said Robert.



Our business is cash-positive without venture capital backing which allows for a lot of freedom, this translates into having the majority of the staking commissions flow directly to our end-users while still maintaining an expansive infrastructure.



We try our best to stay true to the values of the block-chain itself, so we remain non-custodial, take a fair and minimal commission, do not lock anyone into long-term contracts, and encourage users to participate in governance.&nbsp;



Allnodes currently runs approximately 16,000+ Ethereum validators with 6 MEV Boost options for users. They support both ETH validator nodes and Testnet nodes. And while 32 ETH is required to run a node, they also support RocketPool nodes which only need 16 ETH. This type of staking diversity lowers the barrier of entry for self-stakers, while encouraging validator diversity. 



<h3 class="wp-block-heading">The benefits of growing pains&nbsp;&nbsp;</h3>



In the dotcom bubble of Web2, companies like Amazon and Google survived because they were agile and rooted in the fundamentals. Even though the market collapse wiped out over <a href="https://ideas.ted.com/an-eye-opening-look-at-the-dot-com-bubble-of-2000-and-how-it-shapes-our-lives-today/" target="_blank" rel="noreferrer noopener">200,000 jobs and 17 companies</a>, these few went on to revolutionize the web and society. Ellison believes that these events help clean out the hype and speculation. He said, “I think the industry has sobered and will be much more mature and practical. The technology is an incredible leap forward and there are too many amazing people in space to stop building with it.”  



Agile companies that stick to the revolutionary potential and efficiency of blockchain infrastructure and Web3 will be able to carry the industry toward new heights. So even if there are a few more growing pains to come, blockchain infrastructure companies like Allnodes will be here for the long run.



This content is sponsored by <a href="https://www.allnodes.com/stake" target="_blank" rel="noreferrer noopener">Allnodes</a>.



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A Web3 Survival Guide to Crypto Winter

Bessie Liu

Crypto payments and infrastructure provider company Wyre is shutting down, months after Bolt Financial scrapped a $1.5 billion deal to buy the firm.



Wyre was first founded in 2013 by Michael Dunworth and Ioannis Giannaros and had raised a total <a href="https://www.crunchbase.com/organization/wyre/company_financials" target="_blank" rel="noreferrer noopener">$29.1 million</a> across nine rounds of funding, data from Crunchbase shows. Some of its investors include Pantera Capital, Stellar Development Foundation and Amphora Capital. 



Michael Staib, who previously worked as a technical engineer for Wyre, <a href="https://www.linkedin.com/posts/michael-staib-482610205_wyre-openforwork-activity-7014745625246277632-eTC9/" target="_blank" rel="noreferrer noopener">posted</a> on his LinkedIn profile on Dec. 31, 2022, that, “Wyre won’t continue as a profitable business.”



Former employees <a href="https://www.axios.com/2023/01/03/wyre-shutdown-crypto-winter" target="_blank" rel="noreferrer noopener">told Axios</a> that Giannaros had sent an email during the holiday season informing team members that Wyre would liquidate and terminate its offerings in January 2023. It is alleged that no severance will be provided to employees. 



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Looks like Wyre just shut down their business Everyone in our shared Slack channel disabled except the GC. Hearing no severance.&mdash; JD Ross (@justindross) <a href="https://twitter.com/justindross/status/1610361870430441479?ref_src=twsrc%5Etfw">January 3, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Giannaros has not replied to Blockworks’ request for comment.



Dunworth stepped down from Wyre and cashed out 12.5% of his holdings at the company soon after tech platform <a href="https://blockworks.co/news/bolt-in-1-5b-tie-up-with-crypto-infrastructure-provider-wyre">Bolt failed to acquire the company</a> in September last year. 



<a href="https://www.afr.com/technology/aussie-crypto-founder-sees-his-267m-windfall-disappear-20220915-p5bifg#:~:text=Wyre%20founder%20Michael%20Dunworth%20sees,weight%20of%20US%20tech%20wreck" target="_blank" rel="noreferrer noopener">According to Dunworth</a>, crypto market volatility and general market conditions in tech had been one of the main reasons for the deal falling through.&nbsp;



Fintech writer Noah Weidner suspects that the company may have experienced balance sheet issues as early as September.



“I sent an email to Wyre some months back asking about their Yield product — in large part because Wyre+Yield was used by a bunch of small CeDeFi and fintech apps,” he <a href="https://twitter.com/noahweid/status/1610404084498014208" target="_blank" rel="noreferrer noopener">tweeted</a>. “Their response insinuated Wyre+Yield had been closed for months, but some apps were still using it for their treasury.”



Wyre&#8217;s now-failed acquisition had been considered monumental, as the $1.5 billion valuation <a href="https://blockworks.co/news/bolt-in-1-5b-tie-up-with-crypto-infrastructure-provider-wyre">would have been one of the largest non-SPAC deals</a>. The payments platform’s decision to shut down operations may signify the prolonged crypto winter ahead.



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From $1.5B to $0, Crypto Payments Platform Wyre Shuts Down

Sebastian Sinclair

The “crypto dominoes” are falling, sending shockwaves rippling across the landscape, including in decentralized finance, a ranking European Central Bank official opined Wednesday during a <a href="https://www.bis.org/review/r221207d.pdf" target="_blank" rel="noreferrer noopener">keynote speech</a>.



The statement from executive board member — and <a href="https://blockworks.co/news/crypto-needs-taxation-ecb-board-member-says" target="_blank" rel="noreferrer noopener">crypto skeptic</a> — Fabio Panetta, particularly within the decentralized finance (DeFi) sphere, only speaks to half the story.



While it&#8217;s apparent that crypto has experienced a number of “painful bankruptcies” that have underscored just how interconnected major firms had become, activity across competing protocols supporting DeFi applications has yet to drive entirely off a cliff.



DeFi has emerged as a silent hero as users lose faith in the endless fraud and failures among centralized crypto institutions, Jehan Chu, founder of Hong Kong-based trading and investment firm Kenetic, told Blockworks.



“Though regulation looms…increasing mindshare is giving DeFi its chance to shine and prove it has long-term advantages over centralized systems,&#8221; Chu said.



Peering across the sector, one may be forgiven for thinking most projects or protocols in the budding sector appeared lifeless.&nbsp;



Monthly trading volume across decentralized exchanges has fallen each period beginning from the middle of the year. That’s before volume spiked in November on the back of an industry-wide panic — courtesy of FTX.



In June, total decentralized exchange volume clocked around $95 million, data from <a href="https://dune.com/queries/4494/8769" target="_blank" rel="noreferrer noopener">Dune Analytics</a> shows. That figure fell to a low of around $44 million in October before November’s spike. 



December&#8217;s data stands at roughly $8 million, hinting at a weaker-than-average showing of user trading activity for the month so far.



Still, data from DeFiLlama <a href="https://defillama.com/">shows</a> the total value locked (TVL) in DeFi protocols hovers at February 2021 highs — a period in which DeFi had just begun to pick up in earnest.



At that particular peak, DeFi’s protocols contained roughly $54 billion in value before skyrocketing to an all-time high of around $244 billion just 10 months later. It’s still down by about 77% from its peak to stand at roughly $55 billion TVL at the time of writing.



<figure class="wp-block-image"><img decoding="async" src="https://lh5.googleusercontent.com/G_zjPBdsiUZT8xd1JbAza6W49XnzsH0IMljaNAvuQGIadGaUIPkOn_JAaXURny3SDznB-EyKM0meCRj7LxUKbyJRGlFjv15m5AClE_CX1aDaTzdLyXgAW3S3yHmt7yxrruRoGdj98hktXy9KA749VFKfC0XRFTHXa102duoF78OcSwa32XkmTDt72T0-CQ" alt=""/><figcaption class="wp-element-caption">Dune Analytics dashboard by nascent data analyst Howard Peng </figcaption></figure>



Meanwhile, <a href="https://dune.com/Howard_Peng/multi-chain-on-chain-data" target="_blank" rel="noreferrer noopener">activity on Ethereum layer-2s</a> Optimism and Arbitrum — considered the two largest by adoption to date — show both total transactions per day and active addresses have trended upward since the end of August, albeit in a see-saw fashion.



On Aug. 28, Arbitrum and Optimism&#8217;s active addresses stood at roughly 27,000 and 10,000, respectively. Today, those figures have more than doubled to 56,000 and 36,000, data show. 



Daily <a href="https://arbiscan.io/chart/tx" target="_blank" rel="noreferrer noopener">transactions on Arbitrum</a> have jumped more than 480% from July 10 lows of around 58,800 to 338,400. <a href="https://optimistic.etherscan.io/chart/tx" target="_blank" rel="noreferrer noopener">Optimism’s</a> has spiked more than 546% from 55,600 to 349,800 over the same period.



<a href="https://dune.com/blockworks_research/l2-comparison-dashboard" target="_blank" rel="noreferrer noopener">Contracts deployed</a> — which show how many users are engaging and executing tasks on both networks — reveal Optimism’s data has exceeded most other weekly periods in the last 90 days, while Arbitrum continues to chug along nicely.



Individuals appear to be more interested in “free money” included in airdrops during crypto winter, so there’s a focus on Arbitrum, which has not yet launched a token, a spokesperson for on-chain data analytics firm CryptoQuant told Blockworks.



“As alternatives to layer-1s, and having success in protocols such as GMX and Magic naturally increase the interest in layer-2s,” they said.



As the year comes to a close, interest in DeFi remains strong, a counterpoint to the contraction trends seen in metrics like <a href="https://blockworks.co/news/more-delistings-of-blockchain-etfs-could-be-coming" target="_blank" rel="noreferrer noopener">capital flows out of crypto-focused funds</a> from traditional institutions.



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DeFi Sector Warms Under Crypto Winter Sun

<div id="highlights-block_6352acf674cb6" class="highlights">
 <ul>
 <li>Despite the downturn, interest in and demand for crypto as a long-term investment is still very much alive</li>
 <li>A survey M1 conducted of over 1,000 retail crypto investors in September 2022 showed the majority of those investors plan to hold their current crypto assets for more than six months</li>
 </ul>
 
</div>



The 2022 crypto winter froze crypto companies&#8217; growth and sparked investor sell-offs. But even with assets plummeting, industry insiders have continued to push forward through the downturn — restructuring teams, reshaping products and announcing new offerings for institutional and retail investors alike.



Why? To start, the fintech community has already doubled down on building long-term infrastructure around digital assets, while TradFi continues to pile in, catch up and push ahead.



Investors still care, too, as do the financial firms that serve them. Conversations about crypto have actually been reinvigorated over the past few weeks, with a great deal of overdue reorganization in the works.



BlackRock launched bitcoin investing for its big institutional clients. Mastercard and Binance launched a prepaid card, offering crypto rewards in Argentina. Nasdaq launched Nasdaq Digital Assets, offering custody services for bitcoin and ether to institutional investors. And a number of brokerages have opened the doors to crypto investing, including Stash’s <a href="https://cms.blockworks.co/stash-to-add-crypto-to-its-managed-portfolio-offering/" target="_blank" rel="noreferrer noopener">new crypto offering</a>, Fidelity’s new <a href="https://cms.blockworks.co/fidelity-expands-crypto-suite-with-ethereum-index-fund/" target="_blank" rel="noreferrer noopener">Ethereum Index Fund</a>, and even my company, M1 and our launch of M1 Crypto.



So, why is this all happening, seemingly at the worst time possible? And where do the believers go from here?



<h3 class="wp-block-heading">Thinking long term</h3>



The answer lies in the retail investors themselves, who are driving the crypto movement.&nbsp;



Despite the downturn, interest in and demand for crypto as a long-term investment is still very much alive.



Crypto is often viewed as a tool of day-traders and investors intent on making a quick dollar through constant buying and selling, but in reality, there is a strong group of believers keeping the crypto dream alive through their holdings.



That core sticks around. A survey M1 conducted of over 1,000 retail crypto investors in September 2022 showed the majority of those investors plan to hold their current crypto assets for more than six months. In fact, despite the crypto winter, only 21% of respondents plan on selling.



And there’s still so much left to build.



Over the coming year, we will undoubtedly see even more convergence of DeFi and TradFi. Institutional adoption will increase, and crypto companies and projects will continue to raise money to support new innovations in the industry.



As long as that fire is still lit, we can be assured that spring will come again.



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Crypto Winter Won’t Freeze Fintech’s Interest

Ben Strack

<div id="highlights-block_633ec61504c8d" class="highlights">
 <ul>
 <li>Grayscale anticipates mining equipment to become available at “distressed levels” in coming months</li>
 <li>Firm is set to use hardware to mine and sell bitcoin daily</li>
 </ul>
 
</div>



A new private co-investment product from Grayscale Investments is designed to allow investors to gain exposure to mining hardware as it seeks to capitalize on buying opportunities in the distressed segment.&nbsp;



Capital raised by The Grayscale Digital Infrastructure Opportunities LLC (GDIO) will mainly be used to purchase mining hardware, according to Rayhaneh Sharif-Askary, Grayscale’s head of investor relations. GDIO will employ its hardware by seeking to mine and sell bitcoin daily and will look to distribute a portion of its operating income to investors quarterly, she added.



The investment vehicle is available to eligible individual and institutional accredited investors.



After three years of operation — but no later than five years — GDIO will seek an exit strategy, which may include a disposition of its assets.



The product is designed to capture upside, the company said, amid the so-called crypto winter — a period that <a href="https://cms.blockworks.co/crypto-bear-market-may-drag-on-another-8-months-grayscale/" target="_blank" rel="noreferrer noopener">Grayscale researchers said in a July report</a> could last another eight or so months.



Bitcoin mining has become less profitable in recent months, as bitcoin’s price has fallen about 70% from its all-time high reached last November. Some mining companies <a href="https://cms.blockworks.co/crypto-mining-strategies-differs-as-downturn-lingers/" target="_blank" rel="noreferrer noopener">have resorted to selling bitcoin</a> to help cover operational and other expenses. 



“In the coming months, we anticipate mining equipment will become available for purchase at distressed levels,” Sharif-Askary told Blockworks.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“GDIO will have an opportunity to provide liquidity to the mining ecosystem, purchasing mining equipment at an optimal time in the mining cycle to profitably mine bitcoin in the future,” she said.</blockquote>



Grayscale, a subsidiary of Digital Currency Group (DCG), manages $17.6 billion in assets. Crypto mining and staking firm Foundry, a fellow DCG affiliate, is set to manage operations of GDIO.



Foundry provides financing for bitcoin mining equipment and access to equipment manufacturers.



“As part of Foundry’s mission to empower a decentralized infrastructure, we’re excited to partner with Grayscale to broaden the ability to invest in bitcoin mining during this opportune time,” Foundry CEO Michael Colyer said in a statement.



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Grayscale Unveils Mining Hardware Exposure Via Private Product

<div id="highlights-block_62bcaeb209177" class="highlights">
 <ul>
 <li>New vehicle is set to lend a portion of its underlying crypto to offset operating costs</li>
 <li>WisdomTree executive says “we are not shifting our strategy amidst current conditions”</li>
 </ul>
 
</div>



Swiss crypto fund issuer 21Shares has launched the first in a planned series of offerings designed to help investors navigate an upside-down crypto market.



The asset manager brought to market the 21Shares Bitcoin Core ETP (CBTC) on the SIX Swiss Exchange on Wednesday. It’s an exchange-traded product (ETP), the equivalent to an exchange-traded fund (ETF) in the US.



With an expense ratio of 21 basis points, CBTC is set to lend a portion of the underlying crypto on a fully collateralized basis to offset operating costs once the product scales.



“The markets influence how we think about innovation and building new products,” CEO Hany Rashwan told Blockworks in an email. “Releasing CBTC, the cheapest physically-backed ETP in the world, was designed to offer investors a more comfortable entry point to access a critical asset class during a choppy market and helps them to optimize portfolio returns.”



21Shares is building additional bear market-friendly funds slated to launch in the second half. Such offerings would include lower-cost products for long-term strategic allocation, or others for investors after shorter-term tactical allocation or risk-controlled exposure.



Lara Crigger, editor-in-chief of investment research firm VettaFi, told Blockworks interest in bearish products is abundant.



<a href="https://cms.blockworks.co/proshares-to-launch-first-us-etf-thats-bearish-on-bitcoin/" target="_blank" rel="noreferrer noopener">ProShares launched an ETF</a> last week that aims to deliver the inverse of the performance of the S&amp;P CME Bitcoin Futures Index. The fund has grown to nearly $30 million in assets.



Though not a short product, 21Shares’ approach to offer long bitcoin exposure in an ETP with a relatively low expense ratio is attractive, Crigger said. She noted its “unique characteristic” to lend out the underlying bitcoin could bring down costs even more.



“If you believe that bitcoin is currently in a bear market, but that it will one day reverse and rebound, then &#8216;buying the dip&#8217; with a low-cost exposure like this particular ETP is a cost-effective way to stay invested and express that view,” Crigger said.



Rashwan said 21Shares investors are “holding strong and still creating inflows for the long game” — despite market turbulence. The firm notched nearly $30 million in new net assets since mid-May, as 21Shares’ Bitcoin ETP (ABTC) represented roughly 30% of the total.



<h3 class="wp-block-heading">Competitors focused on long-term outlook</h3>



Townsend Lansing, head of product at 21Shares competitor CoinShares, said the firm has not considered launching a product that uses yield to offset operating costs, as CBTC does.



He added that when examining yield products, the company looks for opportunities that offer yield beyond a reduction in the management fee. CoinShares launched physically backed Cosmos and Polygon ETPs that offer exposure to the underlying tokens, plus an additional 5% per year.



“We run a diligence process on all new launches that looks at the coin, the protocol, the founders and other risk metrics, which of course include current and past market dynamics,” Lansing told Blockworks in an email. “Having said that, we tend to take a longer term view with our product strategy, and would tend to be unswayed by shorter-term trends unless they change the risk analysis of the product being launched.”



Will Peck, head of digital assets at fund group WisdomTree, said the company always considers ongoing market conditions and trends when developing new products.



“However, we are fully focused on a long term outlook,” Peck said. “Despite what some are calling the &#8216;crypto winter,&#8217; our long term perspective is that there will be continued adoption of digital assets and technology over time, so we are not shifting our strategy amidst current conditions.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



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21Shares Vying To Build Out ‘Crypto Winter’ Suite

David Canellis

<div id="highlights-block_62a23eca75778" class="highlights">
 <ul>
 <li>Crypto has been in a bear market for nine months already, says Smith, and we’re now undoubtedly in crypto winter</li>
 <li>Blockchain.com was an early Terra investor but sold its LUNA stack before the crash</li>
 </ul>
 
</div>



Cryptocurrencies are collectively down 45% since the start of the year — squarely in bear market territory for the first time in three years.



As with crypto’s previous downturn spanning 2018 and 2019, layoffs are beginning to strike.&nbsp;



Employees at crypto exchanges have been the first on the chopping block – the likes of BitMEX and <a href="https://cms.blockworks.co/gemini-joins-growing-list-of-crypto-exchanges-cutting-staff-amid-downturn/" target="_blank" rel="noreferrer noopener">Gemini</a> have vowed to cut staff since April, while <a href="https://cms.blockworks.co/coinbase-latest-crypto-firm-to-cut-costs-amid-market-downturn/" target="_blank" rel="noreferrer noopener">Coinbase</a> plans to rescind accepted job offers to cut costs.



Without naming specific firms, Blockchain.com CEO Peter Smith at Amsterdam’s <a href="https://www.money2020.com/" target="_blank" rel="noreferrer noopener">Money20/20</a> conference this week said a lot of crypto companies grew too quickly, without focusing on becoming profitable.


<div class="wp-block-image">
<figure class="alignright size-medium"><img decoding="async" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/06/Peter-Smith-Headshot-2022-200x300.jpg" alt="Blockchain.com CEO Peter Smith" class="wp-image-22696"/><figcaption>Blockchain.com CEO Peter Smith | Source: Blockchain.com</figcaption></figure></div>


“We’re the smallest crypto company of its kind by headcount —others have thousands of employees pre-profitability,” Smith said, noting that multiple firms unsustainably spent up to $800 million on marketing costs through this cycle.



Added Smith: “A lot of that has to wash out of the space, not just in crypto but fintech more generally. We’re going to see a fundamental rotation from growth to free cash flow.”&nbsp;



Smith said investors had pushed Blockchain.com, founded in 2011, to spend more on marketing and grow faster throughout the previous mania. Bitcoin surged from $9,000 to nearly $62,000 between the second half of 2020 and November 2021, triggering explosive growth across the crypto sector.&nbsp;



“Every company that pursued that strategy has had a dramatic rearing of their business – large growth rounds collapsing, companies are now raising at down-round prices – it’s going to be difficult for them to adapt,” Smith said. Earlier this week, <a href="https://www.theblockcrypto.com/post/150377/blockfi-is-raising-a-down-round-at-1-billion-valuation-sources" target="_blank" rel="noreferrer noopener">reports</a> surfaced that crypto lender BlockFi was looking to raise funds at a $1 billion valuation, down from $3 billion at its previous round in March 2021.



<h3 class="wp-block-heading">The three epochs of crypto bear markets</h3>



In Smith’s estimation, the current bear market has been going for nine months — leading to more possible pain on the horizon if past patterns repeat.&nbsp;



It’s up for debate, however, whether a bear market equates to the dreaded “crypto winter.”&nbsp;



After all, the previous bear market lasted significantly longer than nine months, and the depths of crypto winter saw bitcoin sink to almost 90% below its 2017 peak. 



In an interview with Blockworks, Smith outlined what he dubs the three epochs of bear markets: the beginning, which is hard to sense; the middle, where despair kicks in; and the new normal.&nbsp;



“We’re entering the second epoch [despair], which is my favorite,” Smith said. “I’m a free market capitalist, and I enjoy the cleansing power of the market.”&nbsp;



Otherwise known, he said, as the chapter where tides go out and we all see who’s wearing pants, <a href="https://www.berkshirehathaway.com/2001ar/2001letter.html" target="_blank" rel="noreferrer noopener">echoing</a> Warren Buffett from a 2001 Berkshire Hathaway earnings call. Buffett is a <a href="https://www.cnbc.com/2022/04/30/warren-buffett-gives-his-most-expansive-explanation-for-why-he-doesnt-believe-in-bitcoin.html" target="_blank" rel="noreferrer noopener">vehement</a> crypto skeptic.



This stage is also defined by the ability to differentiate quality projects, to the benefit of customers, teams and shareholders.&nbsp;



“The last stage is when everybody looks around and says, ’Oh, this is crypto now, and we’re all going to figure out how to make this thing work.’”



<h3 class="wp-block-heading">Blockchain.com exited its LUNA position before the crash</h3>



Blockchain.com never listed Terraform Labs’ failed stablecoin UST, although the platform did offer LUNA. Smith resisted UST, describing the decision to avoid the stablecoin as “not a popular choice.” There was some internal pressure to offer it so users could unlock up to 20% APY on lending platform Anchor.



“Consumers love 20%, but consumers also hate zero,” Smith said, referring to LUNA and UST’s collapse.&nbsp;



Blockchain.com, though, was an early investor in LUNA, long before UST. Smith said he had doubts about the Terra ecosystem’s sustainability and ultimately exited the position before the crash.



“Anything that goes up too fast worries me,” Smith said. “Solana also went up too fast.” Solana currently changes hands for $41 —85% below its $260 record high recorded in November.



Smith also doubted algorithmic stablecoins, despite investing in a few. He said it would be “very cool” for one to work, but by default is inclined to believe they won’t and wants to be proven wrong.



Still, the crypto veteran scoffed at the idea of taking Justin Sun’s new algorithmic stablecoin, Decentralized US Dollar (USDD), seriously. USDD’s circulating supply has skyrocketed from zero to beyond $700 million since the start of May.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.