Recent Stories of Crypto Cracks Have More to Do with Internet Security than Crypto Itself. Growing Number of Institutions Accepting Crypto Support this Thesis.

There is a proverb saying If you can’t beat ’em, join ’em. Violent slumps and vigorous bounce-backs of cryptocurrencies suggest that the minimum requirement to succeed is a high tolerance to volatility and stress. There is few doubt there will be many more jump-ships going forward. For those remaining on board the journey will be less stormy and more meaningful. But if we care to go back in history, we would undoubtedly envisage profound material changes this emerging industry has been witnessing.

Take for example the notorious MtGox coin exchange’s infamous breach and downfall story. Gox was a Bitcoin exchange based in Tokyo, Japan. Launched in July 2010, by 2013 and into 2014 it was handling over 70% of all Bitcoin transactions worldwide. Gox went bankrupt in 2014, it was the world’s largest Bitcoin exchange, holding 850,000 Bitcoins from thousands of users. However, Mt. Gox didn’t employ any type of version control software – a standard tool in any professional software development environment. That meant any coder could accidentally overwrite a colleague’s code if they happened to be working on the same file. There was only one person in charge of these changes who could accept or reject them to the site’s source code. That meant that some bug fixes – even security fixes – could languish for weeks, waiting for him to get to the code. What if that person suddenly died? It’s hard to imagine a similar story nowadays.

Reportedly, in the most recent episode the hacker of the DeFi interoperability protocol Poly Network, that just lost over $ 600m, first asked the protocol for a multi-signature (multisign) wallet to return the funds – and has started returning it. As we learned, the protocol announced that it got attacked on Binance Smart Chain (BSC), Ethereum (ETH), and Polygon (MATIC). Chinese cybersecurity firm SlowMist posted a message shortly after news of the hackers’ breach, saying it was able to identify all the basic data concerning the attacker: his email address, IP address, and device fingerprint. The firm said it used data provided by the Hoo exchange and other firms to determine the hacker’s initial source of funds. The end of that story was that after sending the apparently trolling messages asking if a community vote should decide on where the stolen funds should go, the attacker wrote “READY TO RETURN THE FUND!” In its turn, the Poly Network had posted a letter to the hacker threatening him with law enforcement and stating that the money stolen was “the biggest mistake” and the funds belong to the people. End of the story? Most likely, yes.

Similarly, all the recent ransomware attacks that occurred in the U.S. where hackers demanded Bitcoins rather than fiat money, had been resolved, and the funds – some of them as lump sums while in other examples – incrementally – were recovered. The moral of the fable is that although hackers happen to damage various networks, and sometimes they target crypto funds instead of more traditional funds, that doesn’t mean Bitcoin and other tokens are designed to conceal their identities or help them commit crimes – at least, not in a pronounced manner. The problem of crypto funds security is essentially limited by overall Internet protocol security issues and timeliness and efficiencies of their upgrades. New MtGox look-alike stories assuming bankruptcies caused by large thefts of crypto funds become less and less possible as new security protocols are constantly created to protect better than the older ones – pretty much like everywhere throughout the Internet.

In response to gradually improving sense of security and reliability, according to CoinTelegraph, since May 19th, institutions with 10K-100K BTC have added +269,450 units to their holdings ($12.1 billion). Growing presence of entities in this market outlines its improving stability, which leads to decrease of its volatility.

Several media sources such as Reuters revisited the recent institutional crypto events thereby illustrating progress of the deepening mutual penetration. I decided to extend the list:

Jan. 2021:

  • Investment bank JPMorgan Chase & Co (JPM) in its research note wrote that Bitcoin could hit $146,000 if it becomes an established safe-haven.

Feb. 2021:

  • EV maker Tesla Inc (TSLA) announces it bought $1.5 billion in Bitcoin as CEO Elon Musk says it will soon accept the cryptocurrency as payment for its vehicles.

March 2021:

  • Morgan Stanley (MS) becomes the first big U.S. bank to offer its wealth management clients access to Bitcoin funds.
  • Goldman Sachs Group (GS) reopens its crypto trading desk and says it will offer investments in Bitcoin and other digital assets to its wealth management clients from the second quarter.
  • UK-based hedge fund Brevan Howard sets up a new fund to invest in digital assets, focusing on a long-only range of digital assets including bitcoin.
  • U.S. cryptocurrency exchange Coinbase Global Inc (COIN) was valued at $86 billion at the end of its Nasdaq IPO debut, the biggest listing yet by a crypto company.
  • U.S. business software firm MicroStrategy (MSTR), a major investor in cryptocurrency since 2020, says its Bitcoin holdings grew to almost 92K Bitcoins.
  • Mastercard (MA) unveils plans to support cryptocurrency payments across its network.
  • Bank of New York Mellon (BK) announces a new unit aimed at helping clients trade and own cryptocurrencies and other digital assets.
  • The city of Miami votes in favour of a proposal to allow Bitcoin to be used to pay city workers and for city residents and businesses to make fee and tax payments with the cryptocurrency.
  • Canada’s main securities regulator clears the launch of the Purpose Bitcoin ETF, the world’s first Bitcoin exchange traded fund.
  • Legendary digital payments processor PayPal (PYPL) allows U.S. consumers to use their cryptocurrency holdings to pay at millions of its online merchants globally.

April 2021:

  • Swiss arm of French insurance broker AXA (AXAF) allows its customers to pay for non-life insurance products with Bitcoin.

July 2021:

  • Bank of America, FTX, Coinbase Ventures and Founders Fund agree to become strategic investors in Paxos (PAX stablecoin)
  • PayPal announced progress in creation of a cryptocurrency wallet in the coming months. Among other things, it will include the possibility of staking and smart contracts. Thus, PayPal is able to become a launching pad for all newcomers to the world of cryptocurrencies.
  • Germany allows institutional investors with 1.8 trillion euros under management to invest in Bitcoin and other cryptos.

August 2021

  • JPMorgan Chase & Co gave its financial advisors the green light for its wealth management clients to access the cryptocurrency funds. The bank told advisors that they can now issue orders to buy and sell five cryptocurrency products, four from Grayscale Investments and one from Osprey Funds.

Vladimir Rojankovski, MBA/LIFA

VRM Research

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