Despite depressed crypto prices and recent company collapses, one of the key investors behind crypto hedge fund Pantera Capital believes there’s never been a better time to start a blockchain company.
As part of a Jan. 23 post about the year ahead from a number of executives at Pantera Capital, Paul Veradittakit, General Partner at Pantera Capital explained that "On average," people working in the crypto space are more educated and passionate about crypto than in previous cycles.
Overall, he said, "we are seeing a higher percentage of startups coming to market with strong teams — entrepreneurs coming out of established crypto startups like Coinbase, larger tech companies like Facebook, Uber, and Square, and legacy financial institutions like J.P. Morgan and Goldman Sachs."
The market is still very bearish, with some companies folding and prices recovering lost ground, but Veradittakit believes it's still a worthwhile time to be in the space, citing the billions invested into the space from venture capital firms in the first half of 2022, adding:
"In our experience, bear markets typically represent a time where there is less noise and distraction from building."
"In addition, we've observed that institutions and enterprises are more open than ever before to working with blockchain companies to enhance their businesses," Veradittakit said.
The general partner said he has also observed volume shifting toward highly-regulated exchanges and DeFi-based decentralized exchanges as people try to protect their assets from bad actors, which could inspire the next generation to enter the crypto space.
"With more scrutiny around trust and security, we believe there are opportunities for startups in areas like self-custody, security, insurance, and identity," he said.
Meanwhile, Dan Morehead, the CEO of Pantera Capital, expressed a similar bullish view toward the crypto space, arguing:
"Despite lower prices, I think the space is clearly in a much better position than ever."
According to Morehead, since 2017, developer infrastructure, which was "Practically non-existent back then," has improved dramatically.
"It's just so much easier to write smart contract-based systems now than in the previous cycle," he said.
"Every other area of the stack has improved, whether test suites or automated tools to catch common bugs in smart contracts, to having IDE support for Solidity," Morehead added.
Morehead also points to scalability solutions enabling lower transaction fees as a great leap forward for the space, as "decentralized exchanges can't compete with centralized exchanges if fees are too high."
There is still plenty of fear, uncertainty, and doubt (FUD) floating around in the wake of FTX’s collapse and the resulting contagion in 2022 but Morehead believes the industry is still very much alive.
"People were saying, 'crypto is dead', yet I believe it was one of the best times to get in the space, start building serious things, and a great time to deploy capital into crypto. It really is darkest before dawn,” he said.
Nonfungible tokens (NFTs) are becoming an increasingly popular solution for serving defendants in blockchain-based crimes that would otherwise be unreachable, according to crypto lawyers.
The last year has seen an increase in litigation delivered over NFTs in cases where those accused of blockchain crime were uncontactable through traditional methods of communication.
In November, the United States District Court for the Southern District of Florida granted U.S. law firm The Crypto Lawyers’ request for its client to serve a defendant via NFT.
While the defendant’s identity was unknown, the plaintiff accused the defendant of stealing cryptocurrency worth $958,648.41.
After the plaintiff presented a declaration from a crypto investigator to the court confirming the stolen cryptocurrency transactions, the judge accepted the request to serve this defendant via NFT, as it was deemed to be a “reasonably calculated” way to give notice.
Agustin Barbara, the managing partner of The Crypto Lawyers, told Cointelegraph that serving a defendant via NFT is a powerful tool for blockchain crime, where it is “virtually impossible to identify bad actors.”
Barbara explained that summoning an unknown identity through NFT is done by transferring the NFT into the defendant’s blockchain wallet address where the stolen assets are held.
He noted that this method is a way of reaching the accused when other traditional methods such as email or post are not viable due to the identity being unknown.
Barbara explained that the content of an NFT court notice would usually contain the notice of the legal action with summons language, a hyperlink to a designated website containing the notice and copies of the summons, complaint, and all filings and orders in action.
Michael Bacina, a digital asset lawyer at Australian law firm Piper Alderman, stated that while the “wallet may not be used by the defendant,” and therefore the summons notification may not come to the defendant’s attention, it can drastically limit activity on the wallet and other wallets that have recently interacted with it.
Bacina suggested that it stamps that wallet address with a black mark, which means all other wallet addresses that have made recent transactions with that address could be considered suspicious and affect their activity as well. He noted:
“Businesses may not wish to accept transactions where a wallet is too close to a wallet that is accused of being involved in litigation.”
Bacina added that the advantage of the “open nature of public blockchains” means that it is easy to see if a wallet is in use, meaning there’s evidence that a NFT serving has potentially been seen.
Other court orders webeen served through NFTs in 2022.
An international law firm served a restraining order via NFT in June, and it only took an hour between the asset recovery team airdropping the NFT to the wallet address and 1.3M in USD Coin being frozen on the chain.
That same month saw United Kingdom law firm Giambrone & Partners announce it had become the first law firm in the U.K. and Europe to obtain permission from a High Court judge to serve document proceedings via an NFT.
The policy decision-makers in the United Kingdom are divided on whether the sale, marketing, and distribution of derivatives and exchange-traded notes (ETNs) tied with cryptocurrencies should be prohibited when it comes to retail investors. The Regulatory Policy Committee believes the measure, adopted in 2021, is unjustified under the current circumstances.
The chief British regulator, the Financial Conduct Authority (FCA), imposed the prohibition in January 2021. Since then, companies can no longer offer cryptocurrency derivatives products such as futures, options and exchange-traded notes, or ETNs, to retail customers.
The blanket ban was imposed despite 97% of respondents to the FCA’s consultation opposing the “disproportionate” prohibition, with many arguing that retail investors are capable of assessing the risks and the value of crypto derivatives.
On Jan. 23, the Regulatory Policy Committee (RPC) — an advisory public body sponsored by the government’s Department for Business, Energy and Industrial Strategy — laid out its reasons against FCA’s prohibition.
Using the cost-benefit analysis, the RPC evaluated annual losses from the measure at roughly 268.5 million British pounds ($333 million). As the RPC states, the FCA didn’t provide a clear explanation of what specifically would happen in the absence of the prohibition. It also didn’t explain the methodology and calculations to estimate the costs and benefits back at the time. On that basis, the RPC rates the prohibition at the “red” level, which means it is not fit for purpose,.
The negative review by RPC doesn’t necessarily lead to the direct reversal of legislation. However, given the committee’s ties to the Department for Business, Energy and Industrial Strategy, it may mark the different understanding of the reasonable regulation by the FCA and the government.
Last year the British financial authorities made a number of significant efforts to foster the development of the digital industry. For example, “designated crypto assets” were included in a list of investment transactions that qualify for the Investment Manager Exemption.
This Daily Dose was brought to you by Cointelegraph.