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Weekly Crypto Wrap

Friday, September 9, 2022

Welcome to MRP's Weekly Crypto Wrap, a look back at news reports, on-chain metrics, and other data that moved digital asset markets over the past week. These reports will be delivered every Friday morning, provided free of charge by MRP, and packed with useful information for those just beginning their research into Bitcoin and other cryptocurrencies, as well as investors with more experience in digital asset markets.

Click here to see everything we covered in the last iteration of the newsletter.

Aggregation of key events and breaking stories monitored by MRP

Futures: Bitcoin Bets Look Bearish as Futures Trading Hits Record Level

Regulation: SEC’s Gensler Signals Support for Commodities Regulator Having Bitcoin Oversight

VC: Web3 Infrastructure Startup Mysten Labs Hits $2B Valuation

Russia: Russia Wants to Use Stablecoins to Get Around Western Sanctions

Miners: How Bitcoin Beats Wind And Solar In Reducing Emissions

ENS: Ethereum domain names top Bored Apes on OpenSea’s weekly chart

Breaking down the most critical trends and transaction patterns on the blockchain

Despite sliding to a nearly two-month low on Wednesday, late week surge helped the cryptocurrency market cap regain the $1 trillion threshold on Friday morning. That was largely due to positive news out of the US from the Securities and Exchange Commission (SEC), suggesting the regulator could delegate oversight of the two largest cryptocurrencies by market cap, Bitcoin (BTC) and Ether (ETH), to the Commodities Futures Trading Commission (CFTC).

The price of one Bitcoin in USD terms soared back above $21,000 today, up 13% from a low of $18,600 earlier in the week. For its part, Ether broke above $1,700, also up roughly 13% from this week’s trough near the $1,500 mark. These increases represent how significant a coherent regulatory framework is for cryptocurrencies. While the SEC’s evolving stance on this topic still leaves the thousands of other coins and tokens in legal limbo as potential unregistered securities, BTC and ETH make up a combined 58% of the cryptocurrency market cap and provide the jumping-off point for nearly all other digital assets.

Coverage by the CFTC would treat digital assets like commodities, which incurs a more “hands off” approach compared to how securities are regulated. The CFTC currently maintains oversight of the crypto derivatives market such as futures and swaps.

Because crypto regulation is such an obscure topic, despite its increasing relevance in dictating the price action of digital assets, we will be using our usual on-chain analysis section of this week’s Crypto Wrap to dive deeper into this topic – particularly the SEC’s ongoing legal case against Ripple Labs and legislation in congress to formalize CFTC oversight of certain cryptocurrencies.

SEC Chairman Gary Gensler, who taught a “Blockchain and Money” course at the Massachusetts Institute of Technology (MIT) in 2018 and headed the CFTC from 2009 to 2014, has openly affirmed Bitcoin’s status as a commodity, as well as an innovative technology, stating in 2021 that “Nakamoto’s innovation is real”, referring to Pseudonymous Bitcoin inventor Satoshi Nakamoto. Gensler essentially kicked off this week’s rally, noting at an industry conference that he looks forward to working with Congress to give the CFTC greater authority to oversee and regulate “non-security tokens…and the related intermediaries.”

Gensler apparently views Bitcoin as a “non-security” tokens, and his use of the plural would suggest there is more than one asset that fits this definition. In another interview in 2022, Gensler said “many of these financial assets, crypto assets, have the key attributes of a security... some, like bitcoin… my predecessors and others have said they're a commodity”.

In referencing his Predecessors at the SEC, Gensler may be referring to the former director of the Commission’s Division of Corporation Finance, William Hinman, who referred to ETH a commodity during a 2018 speech. The nature of that speech is currently being debated in court as part of the SEC’s lawsuit against Ripple, the issuing company and payment settlement system of the XRP token. That suit, which was initiated 18 months ago, largely hinges on the interpretation of Hinman’s statements, given the fact that Ripple claims it had understood Hinman’s remarks to indicate that the SEC “would permit present-day sales of virtual currencies given the current market conditions for XRP.” Ripple’s defense is also based on their contention that no fair notice was given to several platforms who met with the SEC regarding their intentions to list XRP over the course of several years to 2019. These platforms were allegedly not informed that XRP was considered to be a security when the question was posed to regulators.

The SEC has struggled to communicate their views about Hinman’s speech to the court. Initially, Coingeek notes the Commission claimed Hinman was making the speech in a personal capacity and was not relevant. However, it would later come to claim that he had received guidance and insight from the regulator’s legal team. US Magistrate Judge Sarah Netburn called out these hypocritical statements in July while denying the SEC’s motion to maintain attorney-client privilege regarding the Hinman speech. In a decision authored by Judge Netburn, she wrote:

“The hypocrisy in arguing to the Court, on the one hand, that the Speech is not relevant to the market’s understanding of how or whether the SEC will regulate cryptocurrency, and on the other hand, that Hinman sought and obtained legal advice from SEC counsel in drafting his Speech, suggests that the SEC is adopting its litigation positions to further its desired goal, and not out of a faithful allegiance to the law.”

The case is ongoing and is expected to have vast precedential implications for the development of crypto regulation. Ripple was largely viewed as a natural target for the SEC, considering XRP’s structure could suggest similarities to some kind of perpetual security offering. The entirety of XRP’s 55 billion token supply was “pre-mined” or created instantaneously by Ripple and has been distributed gradually via escrow at a planned pace of one billion XRP each month. The company, however, maintains the ability to return a certain amount of those tokens into a new escrow, which it usually does.

This very basic overview of Ripple’s escrow function is not sufficient to make any judgement about its status as security, commodity, or otherwise, and we only utilize it as a contrast against Bitcoin’s Proof of Work (PoW) consensus, which utilizes a process known as “mining” to create and distribute new coins into the network. You can read an in-depth description of how Bitcoin mining works in our Weekly Crypto Wrap from June 22, 2022.

Cryptocurrencies like BTC are the focus of bipartisan legislation like the Responsible Financial Innovation Act, introduced by U.S. Senators Cynthia Lummis (R-WY) from the Senate Banking Committee and Kirsten Gillibrand (D-NY) from the Senate Agriculture Committee, focused on passing oversight of digital assets that meet a certain threshold of decentralization to the CFTC, similar to what SEC Chair Gensler has suggested. The text boasts 69 pages of detailed definitions and provisions to incorporate cryptocurrency into existing laws.

As of now, the focus of crypto regulation efforts is squarely on Bitcoin and may very well encompass Ethereum as well, depending on the conclusion of the Ripple-SEC case and Congress's ultimate interpretation of "decentralized". The reality is that this process is very gradual and will taken one step at a time. With that said, this latest step has been definitively taken in a positive direction for digital asset investors.


MRP's latest Daily Intelligence Briefings on everything from BTC to DeFi and NFTs

August 8, 2022: BTC Rebound Set to Revitalize Crypto Miners Bent by Bear Market Pressure →

June 22, 2022: SEC Decision on Key Bitcoin ETF Application Looms as Grayscale Preps Lawsuit, Dissent Rises From Within →

June 2, 2022: Sweeping Ethereum “Merge” Set For Launch as Soon as August, Solidifying New Proof-of-Stake Consensus →

May 16, 2022: Digital Assets Suffer From UST Stablecoin Meltdown, But Silver Linings Emerge From USDT, USDC Volumes →

May 5, 2022: Bitcoin Mining Activity, Adoption of Sustainable Energy Capacity Swells toward All-Time Highs →


Bitcoin Bets Look Bearish as Futures Trading Hits Record Level

The bitcoin-denominated open interest (OI) in futures and perpetuals (futures with no expiry) tied to the largest cryptocurrency has risen to a new record high of 565,579 BTC ($10.6 billion), according to Arcane Research.

Bitcoin short-term futures listed on major exchanges, including the Chicago Mercantile Exchange (CME) and Binance, have been trading at a discount to the spot price since mid-August, indicating bearish flows.

Read the full article from CoinDesk +


SEC’s Gensler Signals Support for Commodities Regulator Having Bitcoin Oversight

Securities and Exchange Commission Chairman Gary Gensler signaled he looked forward to working with Congress to give the Commodity Futures Trading Commission (CFTC) added power, to the extent the agency needs greater authority to oversee and regulate “nonsecurity tokens…and the related intermediaries.”

Leaders of the Senate Agriculture Committee, which oversees the CFTC, are pitching legislation that would assign oversight of the two largest cryptocurrencies—bitcoin and ether—to that agency.

Read the full article from The Wall Street Journal +


Web3 Infrastructure Startup Mysten Labs Hits $2B Valuation

Mysten Labs, the developer of the Sui Layer 1 blockchain, has closed a $300 million Series B at a more than $2 billion valuation. The new round was led by FTX Ventures.

The round comes just about six weeks after Palo Alto-based Layer 1 startup Aptos Labs closed a $150 million Series A, also led by FTX Ventures, along with Jump Crypto. The round valued the company at $2 billion.

Read the full article from Crunchbase News +


Russia Wants to Use Stablecoins to Get Around Western Sanctions

Russia's Deputy Finance Minister, Alexey Moiseyev, said the country is exploring stablecoins to make payments with “friendly countries,” according to Russian state news agency Tass. Russia is working to “create bilateral platforms” with “tokenized instruments” to avoid using U.S. dollars and euros.

Read the full article from Decrypt +


How Bitcoin Beats Wind And Solar In Reducing Emissions

A study from Cross Energy suggested that using natural gas for bitcoin mining was more cost-effective and reduced emissions by more than 500% compared to wind or solar.

For every $1,000 investment in a bitcoin mining system using natural gas, emissions were reduced by 6.32 tons of CO2 equivalents. To put this in perspective, wind and solar each reduce emissions by 1.3 and 0.98 CO2 equivalents for the same $1,000 investment.

Read the full article from Bitcoinist +

Ethereum domain names top Bored Apes on OpenSea’s weekly chart

Ethereum Name Service (ENS) domain names have surpassed Bored Ape Yacht Club (BAYC) as the most traded asset on nonfungible token (NFT) marketplace OpenSea over the last seven days.

The recent spike in ENS trading volume has seen the average price of ENS items increase 167% to 0.3895 ETH, or $641 at the time of writing, while daily volume has risen from 120.7 ETH to 1044.6 ETH.

Read the full article from Cointelegraph +


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