Paradigm, Sequoia Invest $1B in Citadel Securities

The biggest crypto news and ideas of the day

Jan. 11, 2022

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Welcome to The Node.

In today's newsletter: Steve Mnunchin FOIAed. Kevin O'Leary's investing playbook. And crypto exchanges will do your taxes.

Questions? Feedback? We'd love to hear from you – simply reply to this email.

–Daniel Kuhn

Today's must-reads

Top Shelf

CRYPTO CITADEL: Venture capital firms Paradigm Capital and Sequoia Capital have agreed to invest $1.15 billion in electronic trading giant Citadel Securities, a sister company of crypto skeptic Ken Griffin's hedge fund Citadel. The move brings Citadel Securities closer to crypto, as Paradigm focuses on investing in crypto and Web 3-related firms, and values the firm at roughly $22 billion. Meanwhile, Decentral Park Capital, an early-stage investment firm with $140 million in assets under management, unveiled a $75 million DeFi-focused fund.

MNUCHIN FILES: CoinDesk obtained 250 pages' worth of crypto-related documents from Steven Mnuchin's tenure as Treasury Secretary via a Freedom of Information Act (FOIA) request. The documents shed light on presidential adviser Jared Kushner's ideas for a U.S. digital currency, Mnunchin's proposal for stringent crypto wallet regulation and the crypto industry's attempts to lobby the government.

TAX RELIEF: Utah-based tax software firm TaxBit has launched the TaxBit Network – a supported network of 20 top crypto companies, including Coinbase, Gemini and SuperRare, that will allow clients of those companies to access 2021 crypto tax forms at no charge. "You [don't] need to worry about racking up a big tax bill when it comes to preparing your taxes," CEO Austin Woodward said. "We've removed the concept of transaction limits, which no one in the industry has ever done." This might a relief for billionaire Bill Miller who disclosed 50% of his net worth is in bitcoin.

INFORMATION SERVICES: Ethereum Push Notification Service's (EPNS) just-launched "Web 3 communication primitive" will send push notifications to users of top DeFi protocols MakerDAO, Aave and dYdX, among others, to help them keep track of news, on-chain metrics and crypto movements. CoinDesk is an early user for those who want to opt in to news alerts directly to Ethereum addresses. Separately, crypto identity startup Unstoppable Domains has started a single sign-on service using NFT domains for Ethereum and Polygon.

CRYPTO ATMS: The use of crypto payments to facilitate illegal human and drug trafficking is rising, and the Government Accountability Office (GAO) is blaming crypto kiosks. In a new study released Monday, the congressional auditor and investigation said crypto ATMs contributed to the surge because the machines are less regulated than crypto exchanges. The GAO called on the Internal Revenue Service and Financial Crimes Enforcement Network (FinCEN) to introduce new regulations.

Elsewhere ... Axie Infinity's gaming sidechain is bigger than many Layer 1s. Luxor Technology launched a new mining machine marketplace. TZERO paid $800,000 to settle SEC charges. The Associated Press has an NFT marketplace for photojournalism.

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Overheard on CoinDesk TV...

Sound Bites

"Multiple equities, multiple tokens, multiple coins, multiple blockchains. I own so many of them."

–Celebrity investor Kevin O'Leary, on CoinDesk TV's "First Mover."

What others are writing...

Off-Chain Signals

How one of South America's biggest dams became a Bitcoin battleground (Rest of the World)
LinksDAO Ethereum NFT Prices Jump After Steph Curry Purchase (Decrypt)
Macro-driven crypto plunge spares NFT floor prices (The Block)
BITCOIN IS NOT DEMOCRATIC PART ONE: PROBLEMS WITH DEMOCRACY (Bitcoin Magazine)
Artist Ryder Ripps Speaks Out About Bored Ape Yacht Club's Alleged Racist Ties (Know Your Meme)

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Sponsored Content

Pirate Chain: Moving Value From Centralized Exchanges to a Private Wallet? Go to wARRR

Privacy coins certainly have their use cases. What they haven't had until recently is a way to acquire or divest these tokens untraced. It's like having a speed-limitless autobahn rolling out straight and flat ahead of you, but with a police cruiser at every on- and off-ramp.

"If someone knows of one transaction you made on a centralized exchange, they can find out almost every trade you ever made," warns the pseudonymous Draeth, captain of the all-volunteer team who developed Pirate Chain.

Draeth's project, which is informed by earlier work done at Zcash, accounts for about $250 million of the $13 billion privacy coin space.

Putting the news in perspective

The Takeaway

Kevin O'Leary's Crypto Investing Playbook

Kevin O'Leary is a centimillionaire, a businessperson on reality TV and a crypto bag holder. He's one of many, many traditional investors with public profiles to make big moves into the crypto market last year during the biggest run-up to date. He's invested in startups, draws yields by staking his stablecoins and has allocations across 32 different cryptocurrencies, he said on CoinDesk TV Tuesday morning.

"Multiple equities, multiple tokens, multiple coins, multiple blockchains," O'Leary told the "First Mover" hosts. "I own so many of them."

O'Leary, 67 and born in Canada, has made a career out of investing. But it's not just his job, it's his persona. He's "Mr. Wonderful". He's a shark who invests in cupcake companies. He's the guy who calls it as he sees it: Investments either win or lose. It's that "binary."

Yet, when it comes to crypto, O'Leary is an advocate for diversification. He says his largest holding today is ETH, the native currency of the Ethereum network, and he has also bought BTC, SOL, MATIC and 28 other coins. Likewise, seeing crypto exchanges as potentially lucrative, he sees a world where both decentralized and centralized exchanges can win.

Last week, his decentralized finance play, WonderFi, bought a regulated Canadian exchange in a cash and stock deal.

"In my world, I can go all the way to 20% in crypto, and within that subset no position will be larger than 5%," he said. "That is a very sound mandate of diversification. You will get the rise of crypto. Not all will be equal. … I'm not going to get wrecked if one 5% position goes to zero."

Although spread wide, O'Leary says these investments are not random. Drawing a comparison to Microsoft and Google, he views cryptocurrencies as "productivity software." Bitcoin is not a coin, there's no physical counterpart, it's code, he said. Likewise for tools like Polygon, which is trying to bolster Ethereum's lackluster throughput. He doesn't "play" with meme coins, favoring "real productivity."

"I don't know which of these platforms is going to win. That's why I own them all," he said. "I'm investing in the long-term future of a global enterprise."

That's a fine statement for a millionaire to make, but probably unrealistic for the many everyday people looking to bet on crypto. But it's consistent with Mr. Wonderful's view of the industry. Among crypto fanatics there's a large emphasis on bitcoin being a tool of personal responsibility. Bitcoiners advocate self-reliance, self-custody and the self-management of time horizons.

But for O'Leary, crypto is better seen as a sub-sector of the largest economy. He proffered a phrase, "the 12th sector of the S&P," referring to the Standard & Poor's 500 stock index, for his vision of mass adoption. "The real potential of crypto is not just an individual's, it's institutional capital," he said. "You need to attract it."

Indeed, as O'Leary notes, "the smartest hands over the keyboard now are in crypto." Venture and regular old capitalists have plowed "billions of dollars" into crypto the past two years.

Recently, there has been something of a populist revolt against this trend. Block CEO Jack Dorsey, Signal founder Moxie Marlinspike and countless others have spoken out against the presence of large crypto bagholders in the market who tilt the scale and potentially reintroduce centralization into supposedly decentralized tech. Although rich themselves, they represent a real view.

Millennial market commentator Kyla Scanlon wrote just yesterday about this "narrative" war. Web 3 is also likely to be interpreted as "a promenade of wealth" as "an equitable, cooperative, and accessible" version of the web that the tech presents.

O'Leary, again, straddles the binary. Decentralized finance can make markets more transparent, resilient and less expensive, he said, but the benefits will probably accrue to the top. "You're going to see massive amounts of institutional capital come into this because of the economic value," he said.

That is, if we can just get a little regulatory clarity, O'Leary said. He shared the story of what happened to his capital gains from investing in real estate after he exited the market. Instead of parking his cash at a bank where he'd lose buying power due to inflation, he wanted a stake in the dollar-pegged stablecoin USDC on FTX (a crypto exchange he's invested in and is a paid spokesperson for).

It took six months to set the arrangement up, and it's still less than ideal. "Within my own compliance department, they do not consider stablecoins cash, they consider it equity" so he can't hold more than 5% due to compliance concerns.

"Right now I need, I really need, the regulator to make policy on stablecoin," he said, referring to the asset class in the singular.

This isn't the first time O'Leary has called for regulations. Last year, he played a major role in drumming up environmental concerns against bitcoin, saying that for institutions to get involved they need an ESG-friendly option. Regulation is needed, as are eco-friendly miners to create distinct versions of clean and dirty bitcoin.

O'Leary is a skilled investor and spokesperson. But does the industry need more investors like Mr. Wonderful?

–Daniel Kuhn