Crypto Sells Off Again As CLARITY Act Stalls

Despite Ethereum hosting its much-loved annual conference in Denver this past week, the crypto pain is unyielding.

Ethereum dropped to nearly $1,800, flirting with new lows dating back to May of last year as even co-founder Vitalik Buterin continued selling ETH from his public wallets.

But as I learned at ETHDenver in my keynote conversation with the CEO of one of the largest Ethereum treasury companies — there are still reasons to be bullish. According to Sharplink CEO Joseph Chalom, who spent 20 years at BlackRock, the tokenization thesis is finally hitting its stride.

“I think it is going to start with step function increases in finance,” he told me, noting Wall Street is starting to connect the dots. “I had a front-row seat for 20 years on a broken ecosystem — the exact opposite ecosystem of Ethereum. It wasn't programmable. It wasn't decentralized. It settled in 1 to 3 days. And frankly, there were intermediaries who took tons of friction out of the system.”

As convincing as the “all assets are getting tokenized on Ethereum” narrative may be — unfortunately, bears are still firmly in control. Pessimism is pervasive, even on the fronts where optimism was budding once again. On Monday, odds of crypto’s CLARITY Act getting passed into law once again tanked, coinciding with the latest wave of liquidations in crypto.

Bettors saw odds surpassing 80% as recently as Friday — just days after Coinbase CEO Brian Armstrong sat by pro-crypto Sen. Bernie Moreno to reiterate his confidence that it will get done by April. But by Monday, odds had cratered to just 50%. It seems the market is once again saying that without passing the CLARITY ACT, it’s hard to imagine much of the “tokenization” narrative really plays out.

And — to make matters worse — if a deal doesn’t get done, crypto will also have to deal with worsening geopolitical fears and a broader market struggling with issues in private credit. If you haven’t been paying attention, Blue Owl Capital is denting investor confidence in what was an already shaky sector. Per CNN:

Last week, it rattled the market when it abruptly announced it would restrict investors in one of its private funds from taking their money out at previously set quarterly intervals. Instead, Blue Owl said it would sell off assets and use the proceeds to pay investors back on an unspecified timeline. When Blue Owl sold those loan assets, it collected nearly their entire value –a potential sign that the market isn’t too worried about private credit.

Blue Owl managers framed it as an innocuous schedule change designed to return investors’ money faster than initially planned. But some investors read it as another sign of trouble in private markets. Mohamed El-Erian, former CEO of Pimco, wondered on X whether the news was a “canary-in-the-coalmine” moment similar to the run-up to the 2008 financial crisis.

So, what does that have to do with crypto? Well, if you extrapolate how things might continue — in an unwind, crypto always seems to be the first thing to get sold when people need to raise cash. And, as Bank of America recently highlighted in a recent survey, most all portfolio allocators are heavily exposed right now — sitting on near-record low levels of cash. That could be why even the analysts who called the crash say we could still have a little risk of a further fall from here in the crypto bottoming process.

Crypto Sleuth ‘ZachXBT’ Teases Bombshell

Crypto doesn’t have a Batman — but if we did, it might look something like ZachXBT. The onchain sleuth often publishes research, helps people recover stolen funds, and tries to alert hacked entities or exchanges to illicit funds being moved before it’s too late.

Generally, when ZachXBT speaks, crypto listens. That’s why the fact that he’s teasing a big investigation into insider trading at “one of crypto’s most profitable businesses” is such a big deal.

He said the investigation will drop February 26. Any guesses?

Terra Sues Jane Street Over Insider Trading

Speaking of bombshells, the administrator handling the Terraform bankruptcy after the $40 billion implosion has alleged trading giant Jane Street of exploiting insider information to accelerate the 2022 collapse. Per WSJ:

In a heavily-redacted complaint, the administrator alleged Monday in Manhattan’s federal court that Jane Street used material nonpublic information from Terraform insiders to front-run trading that sped up Terraform’s demise. …

“Jane Street abused market relationships to rig the market in its favor during one of the most consequential events in crypto history,” Snyder said in a statement. “On behalf of injured parties, we will pursue all avenues supported by the facts and the law against those who exploited their position and reaped substantial profits at the expense of Terraform Labs’ creditors.

Jane Street refuted any wrongdoing in the collapse, but it is interesting to look back on what Terra founder Do Kwon told us in his first interview since the collapse. Mainly, that someone sought to exploit the Curve DeFi pool around the same time Terra sought to rebalance its own liquidity in a move that only core team members knew about.

Specifically, on May 7, 2022, at 5:44 p.m. EST, Terraform withdrew 150 million TerraUSD from the Curve3pool, a liquidity pool where stablecoins—typically dollar-pegged cryptocurrencies—could be exchanged one for the other.

Less than 10 minutes after Terraform’s withdrawal, which hadn’t been publicly announced to the market, a crypto wallet that some analysts have linked to Jane Street withdrew 85 million of TerraUSD from the same liquidity pool, the complaint alleges.

While it may be true that Jane Street’s moves accelerated Terra’s demise, it’s becoming more clear that it was the perfect crypto project for big trading firms to target. Last year, Galaxy Digital was the target of a massive $200 million settlement after CEO Mike Novogratz was revealed to be publicly promoting Terra while privately selling it.

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