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First Mover Asia: Dissecting Three Arrows Capital's Fall; Ethereum Merge Spurs Continued Market Gains

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·8 min read
In this article:
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Good morning. Here’s what’s happening:

Prices: Ether continues to soar on euphoria about the Merge; bitcoin spikes again.

Insights: We can dissect Three Arrows Capital's fall, thanks to legal transparency.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover, our daily newsletter putting the latest moves in crypto markets in context.

Prices

Bitcoin (BTC): $23,578 +7.0%

Ether (ETH): $1,574 +1.5%

Biggest Gainers

Asset

Ticker

Returns

DACS Sector

Cosmos

ATOM

+13.2%

Smart Contract Platform

Solana

SOL

+10.4%

Smart Contract Platform

Decentraland

MANA

+10.2%

Entertainment

Biggest Losers

Asset

Ticker

Returns

DACS Sector

Polygon

MATIC

−0.4%

Smart Contract Platform

Terra

LUNA

−0.2%

Smart Contract Platform

Markets

S&P 500: 3,936 +2.7%

DJIA: 31,827 +2.4%

Nasdaq: 11,713 +3.1%

Gold: $1,712 +0.2%

Bitcoin Rises; Ether Continues to Soar

Crypto prices continued to soar in Tuesday trading amid renewed investor confidence about the future of the economy and the long-anticipated Ethereum Merge.

Bitcoin blasted through the $23,000 threshold early in the day, rising over $23,700 at one point. The largest cryptocurrency by market capitalization was recently trading near $23,600, a more than 6% gain during the previous 24 hours and up approximately 20% from a week ago.

Yet, bitcoin's performance pales next to ether, the token of the Ethereum blockchain, which has skyrocketed about 50% over the past seven days as updates trickle in about the Merge. The Merge will shift the protocol from its current, energy-sapping proof-of-work model to a more environmentally friendly proof-of-stake one. The second-largest crypto by market cap after bitcoin was cruising comfortably above $1,500, a more than 1.5% increase over the previous day. Other major altcoins spent their Tuesday well in the green with YGG spiking over 26% at one point and ETC, the token of Ethereum Classic, climbing more than 15%.

"Crypto may be finding a bottom," Noah Hammond, the CEO of asset manager AdvisorShares, told CoinDesk TV's "First Mover" program. "It feels like we're in this pricing trough, bouncing off the bottom and then hitting up to the top. And over the last month, ether has been moving up significantly."

"Positive momentum, which is nice to see," Hammond added.

Cryptos' dramatic rise dovetailed with equity markets' steep gains on Tuesday as markets continued to look favorably on a number of recent earnings, particularly in the financial services sector. Goldman Sachs (GS) and Bank of America (BAC), among others, have reported better-than-expected quarters in recent days. Investors have even found encouragement in the U.S. central bank's likely decision to boost interest rates 75 basis points instead of a more robust 100 points.

Ethereum community conference

Ether's ongoing upturn also comes as the Ethereum Community Conference (EthCC) kicked off Tuesday morning in Paris with more than 250 speakers and a speech from Ethereum co-founder Vitalik Buterin on Thursday. As CoinDesk's Omkar Godbole reported, ether topped a key technical level for the first time in three months, moving above the 50-day simple moving average (SMA) of $1,327 on Monday, hitting a one-month high above $1,500. Bitcoin has remained below its 50-day SMA at $23,000.

Ether's options market turned upward on Monday, showing a bias for strength in Ethereum's native token for the first time in over six months. Meanwhile, for once the crypto day's headlines were largely absent the latest revelations about embattled crypto lender Celsius Network and crypto hedge fund Three Arrows Capital, both of which have filed for bankruptcy.

In a note to CoinDesk, Karl Jacob, the founder and CEO of stablecoin platform Bacon Protocol, believes investors "priced in" inflationary bad news, enabling the current crypto rally.

Jacob also noted the strength of the decentralized finance (DeFi) sector. "While we have seen multiple businesses collapse in this cycle, which is never good, we have also seen the power of DeFi’s market resilience as those loans were paid back almost immediately while more traditional loans are stuck waiting for the courts to figure out who gets what," he wrote. "Despite billion-dollar businesses failing, blockchain and decentralization continues to command huge interest in the eyes of investors.”

Insights

Dissecting Three Arrows Capital's Fall

In the past week, the transparency of the blockchain has met the openness of the court system in the U.S. and Singapore.

Thanks to a major disclosure to the courts on behalf of Three Arrows’ liquidator, we’ve learned a lot.

There have been revelations such as how much money Three Arrows owes Digital Currency Group’s subsidiary Genesis Global Trading. Digital Currency Group also owns CoinDesk.

Another: Despite TPS Capital’s claims to the contrary, court documents reveal a tight relationship with Three Arrows Capital.

Or, how thanks to Singapore’s transparent corporate registry ⁠– a far cry from the British Virgin Islandscomparative black hole – we could learn about Three Arrows' stake in Deribit via a Special Purpose Vehicle.

This is all possible thanks to an open and transparent system of government in Singapore and the U.S. While Singapore is a tax haven, it’s a transparent one. Its founder, Lee Kuan Yew, saw the nation's path to prosperity as one of good governance and honesty.

There, the corporate registry is available online and for a small fee. Those wishing to find details about a company can get a list of its directors and shareholders, as well as its last filed returns.

In contrast, all of this is a black hole in the BVI. Why? Because Singapore isn’t a place to hide money, it’s somewhere to do business efficiently. BVI’s entire business model is “confidentiality,” which lends itself to the allied industry of money laundering. Under the 2004 edition of the Companies Act, directors of a firm aren’t required to be public, which is in total contrast to Singapore.

No hurry to change

And the BVI doesn’t seem to be in a hurry to change this. Although cooperation with foreign law enforcement investigations has increased post-"Panama Papers," a true transparent BVI wouldn’t be good for business.

As the Financial Times reports, BVI corporate registry officials will happily boast that their know-your-customer process is more careful than that of the United Kingdom’s.

“When you look at our compliance rating, it’s on a par with and in some instances actually surpasses those of the United Kingdom or the United States,” Elise Donovan, chief executive of BVI Finance, a trade body, told the FT.

But the DNA of the island is robust. The confidentiality law that helped hide TPS Capital’s connections to Three Arrows is going nowhere fast.

Lawyers in BVI who spoke to the FT scoffed at the idea behind the "Panama Papers," which helped kick off reform on the island.

“Industrial-scale hacking and data theft,” said one lawyer to the FT. “What is good about that?”

So it looks like the “transparency’” of the blockchain has no home in BVI. Just the gains from trading on the platform.

Important events

9:30 a.m. HKT/SGT(1:30 a.m. UTC): People's Bank of China interest rate decision

2 p.m. HKT/SGT(6 a.m. UTC): U.K. consumer price index (June/MoM/YoY)

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

Crypto Lender Celsius’ First Court Hearing & Reorganization Plan, Global Adoption of CBDCs

Celsius Network is betting its mining operation will drive revenue to help the crypto lender emerge from bankruptcy. CoinDesk's Cheyenne Ligon joined "First Mover" to report the details of Celsius' first court hearing. As the ether (ETH) rally continues, AdvisorShares CEO Noah Hamman provided his crypto markets analysis. Plus, Atlantic Council Director Josh Lipsky provided an update on global central bank digital currencies (CBDC).

Headlines

'Singapore-based' Crypto Firms Leading Market Meltdown Were Not Regulated, Central Bank Chief Says: Troubled companies like Three Arrows – reported by the media as being based in Singapore – have "little to do" with local crypto regulations, said the head of the Monetary Authority.

US Justice Department Seizes $500K in Ransom Payments and Crypto From North Korean Hackers: Deputy Attorney General Lisa Monaco said the FBI has identified a new type of ransomware used by the state-sponsored hackers.

Ether Breaches 50-Day Average for First Time Since April; Bitcoin Lags: Ether's bounce above the 50-day average may be fleeting, one chartered market technician said.

Bored Apes Creator Warns of Threat Group Targeting NFT Communities: Attackers have targeted wallets hosting several high-profile NFT collections in the past few months.

Indian Exchanges Hold Meeting to Discuss Way Forward After Crypto Advocacy Body Is Dissolved: Sources: The meeting is currently underway and at least 10 major exchanges are involved in the deliberations.

Longer reads

Crypto Carbon Credits: Slapping Lipstick on a Pig: There are deeper issues with crypto’s greenification beyond the current market rout.

Other voices: Crypto Crash Stalls WeWork Founder Adam Neumann’s Climate Venture (The Wall Street Journal)

Said and heard

"Our security team has been tracking a persistent threat group that targets the [non-fungible token] community. We believe that they may soon be launching a coordinated attack targeting multiple communities via compromised social media accounts. Please be vigilant and stay safe." (Yuga Labs/Twitter) ... "LayerZero is incredibly thrilled to partner with Christie’s Ventures. We've seen firsthand how Christie’s has been on the forefront of Web3 and a pioneer in the space. We look forward to working with their team to find new and innovative ways to create the most accessible, frictionless experience with assets indexed over multiple blockchains." (Bryan Pellegrino, LayerZero co-founder and CEO in a press release about a new venture fund from the auction house Christie's)