Senate Confirms Janet Yellen as US Treasury Secretary

Janet Yellen is the 78th U.S. Secretary of the Treasury.

The former Federal Reserve chair and longtime economist secured enough votes in the Senate on Monday after a confirmation hearing on Jan. 19. Yellen was tapped by President Joe Biden to lead the Treasury Department after winning election last year. She succeeds Steven Mnuchin, who left office on Wednesday following Biden’s inauguration. 

The newly minted Cabinet official hasn’t spoken much on crypto. During her term leading the Federal Reserve Board, she indicated she wasn’t a huge fan of bitcoin but called for light regulation.

Yellen joins a Treasury Department overseeing a host of crypto-related proposed rules as well implementing President Biden’s response to an economic crisis brought about by the year-long global coronavirus pandemic. During her confirmation hearing she called for “big” relief from the government to support U.S. residents.

“Neither the President-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big,” she said in her opening remarks, before Biden was sworn in as president. “In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.”

Yellen did not address the risk of heightened inflation during the hearing, though she said maintaining the stability of the U.S. financial system would be beneficial for both the U.S. and other nations.

Though inflation in the U.S. has been below 2% in the past few years, economists are watching the amount of debt the nation racks up in addressing the ongoing COVID-19 pandemic.

‘Particular concern’

Yellen didn’t provide much of a window into how she might approach the question of regulating cryptocurrencies during her testimony or in written remarks sent to the Senate Finance Committee after the hearing. 

She called cryptocurrency use in terrorist financing “a particular concern” during the hearing in response to a question by Sen. Maggie Hassan (D-N.H.).

“We need to make sure that our methods for dealing with these matters, with tech terrorist financing, change along with changing technology,” she said. “I think many [cryptocurrencies]  are used, at least in a transactions sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use.”

However, she also said that legitimate uses should be encouraged, and said cryptocurrencies have the potential to “improve the efficiency of the financial system.” 

She intends to work with the Federal Reserve and other financial regulators, including the Financial Crimes Enforcement Network (FinCEN), Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Office of the Comptroller of the Currency (OCC). 

While FinCEN seems set to continue operating under the leadership of Director Kenneth Blanco, who took office in 2017, the other agencies are currently operating under acting heads while Biden’s nominees wait for their confirmation hearings.

Former CFTC Chairman Gary Gensler has been nominated to chair the SEC, which is currently being overseen by Commissioner Allison Herren Lee. The CFTC is being overseen by Commissioner Rostin Behnam, with Georgetown University Law Professor Chris Brummer rumored to be Biden’s choice to chair the agency. Biden will also reportedly tap former U.S. Treasury official and University of Michigan Ford School of Policy Dean Michael Barr to run the OCC, which is being overseen at the moment by Blake Paulson. 

Active issues

Yellen will oversee the finalization and implementation, or possible modification, of a host of proposed rules, largely centered around FinCEN, that could directly impact the crypto industry.

The most controversial is a proposed reporting rule spearheaded by former Secretary Mnuchin, which would require exchanges to record counterparty information from transactions to unhosted wallets, as well as have exchanges file currency transaction reports for transactions in excess of $10,000 per day. 

The comment period for the rule – originally just 15 days – was extended earlier this month, with different aspects receiving different extensions. 

The industry has an additional 15 days to respond to the CTR requirement, which FinCEN said matched existing rules for cash transactions. 

However, industry participants are getting 45 more days to respond to the counterparty requirement, which participants already say is far more difficult to comply with. FinCEN said the extended deadline is due to the complexity of the issue.

Other proposed rules being considered by FinCEN include a thresholds rule, which would require banks to collect and store fund transfer information for transactions of more than $250 leaving or entering the U.S., whether in fiat or crypto. 

This is far less than the current limit of at least $3,000. A public comment period for the proposal has already closed.

At the end of 2020 FinCEN also announced it would require foreign bank account holders to report cryptocurrency holdings in excess of $10,000, bringing an offshore reporting rule that already applies to fiat into the crypto space.

The status of these rules is unclear.

On the domestic banking front, the OCC finalized a rule that prohibited banks from not lending to specific industries, a move that seemed primarily aimed at the firearms and energy sectors but which the crypto industry saw as beneficial. However, this rule was not sent to the Federal Register before Biden took office, and one of his first acts was to freeze all rules from being implemented until his team can review them.

It seems unlikely this rule will be implemented.

Cathie Wood: More Tech Companies Will Adopt Bitcoin Treasury Reserves

ARK Investment Management CEO Cathie Wood said she believes more companies will load their balance sheets up with bitcoin.

In a Saturday interview with Yahoo Finance, the exchange traded fund (ETF) magnate and outspoken bitcoin advocate said large companies have asked her if they should follow Square. Inc’s lead. Square is one of the few public companies to invest in bitcoin as an inflation hedging strategy.

“I think we’re going to hear about more companies putting this hedge on their balance sheet,” she said, “particularly tech companies who understand the technology and are comfortable with it”.

Her prognosticatoions have yielded returns faster than ARK’s upcoming Space ETF. On Monday, bitcoin miner Marathon Patent Group bought $150 million in bitcoin. The company is by its nature perhaps best-suited to understand the nuances of bitcoin and blockchain technology.

But the market-leading cryptocurrency’s recent price swings have also highlighted the danger of inexperienced companies trying to bet on bitcoin treasuries.

One day before Wood’s interview, virtual reality company NexTech AR dumped its 130 BTC treasury reserve, a “long-term” investment the Canadian company had disclosed in late December. Executives had gotten spooked by false media reporting on a so-called “double spend” on the bitcoin blockchain.

Market Wrap: Bitcoin Hits $34.8K While Ether Volatility Skyrockets

Some bitcoin investors appear to be buying in around $30,000 and taking profits at $40,000, according to one analyst. Meanwhile, ether’s spot market is decoupling from bitcoin and gyrating wildly, according to volatility metrics.

  • Bitcoin (BTC) trading around $32,963 as of 21:15 UTC (4:15 p.m. ET). Gaining 3.5% over the previous 24 hours.
  • Bitcoin’s 24-hour range: $31,650-$34,893 (CoinDesk 20)
  • BTC above the 10-hour and the 50-hour moving averages on the hourly chart, a bullish signal for market technicians.

Bitcoin trading on Bitstamp since Jan. 22.
Source: TradingView

The price of bitcoin made gains opening the week, rallying from as low as $31,640 at around 21:00 UTC (4 p.m. ET) Sunday to as high as $34,893 at around 14:00 UTC (9 a.m. ET) Monday. The price has slipped a bit since then, with the world’s oldest cryptocurrency changing hands around $32,963 as of press time. 

“A clean break above $34,500 and more sustainably above $36,000 is needed,” David Lifchitz, chief investment officer of quant trading firm ExoAlpha, told CoinDesk. “We could also be in for a classic ‘W’ bottom when the first bounce off the lows is met by another batch of selling before it eventually bounces back for real.”

So far this year, bitcoin is up over 13% on spot exchanges such as Luxembourg-based Bitstamp.

Spot bitcoin performance on Bitstamp in 2021.
Source: TradingView

“Everyone is seeing good buying at the low end of the $30,000s, so clearly the institutions are comfortable entering there,” noted Chris Thomas, head of digital asset for Swissquote Bank.  “We’ve previously seen strong selling around $40,000 so these will be the big tests over the next week or two.”

“I’d imagine there are a few big names we don’t yet know of currently buying up bitcoin,” Thomas added. “We’ll likely discover them very soon, by which point they will have accumulated quite substantial volumes.”

On the perpetual swaps market, where liquidity providers put up crypto for traders to leverage, funding rates are trending back up, particularly on OKEx, which is offering 0.0865%, its highest since Jan. 20. This is a signal leveraged traders are willing to start paying up to position themselves long.

Bitcoin swaps funding the past week.
Source: Skew

In the options market, a bullish bitcoin mentality appears to be forming. Open interest (OI) by strikes is highest at the $52,000 price point as of Sunday, with 21.4 BTC in OI. Second place is much more bearish, however, with 17.7 BTC piled up at the $20,000 spot level.

Bitcoin options open interest by strike.
Source: Skew

“I think both bitcoin and ether will continue to see higher highs,” said Michael Gord, chief executive officer trading firm Global Digital Assets. “But as we saw in the previous bull run when bitcoin cools off, the spotlight moves to ether and when BTC & ETH are cooled down, we start to see altcoins shine,” Gord added. “That’s what I expect to see the next couple weeks.” 

Something to watch: Ether’s decoupling from bitcoin. Over the past year, the correlation between bitcoin and ether has slipped.

Bitcoin and ether 90-day correlation the past year.
Source: Shuai Hao/CoinDesk Research

On Jan. 24, 2020, the 90-day correlation was at 0.86. A 90-day correlation of 1 means highly correlated. On Sunday, Jan. 24, 2021, that figure was at 0.66.

Ether gets volatile

The second-largest cryptocurrency by market capitalization, ether (ETH), was flat Monday, trading around $1,342 and in the red 0.08% in 24 hours as of 21:15 UTC (4:15 p.m. ET).

Ether’s 30-day volatility, a measure of the asset’s gyrations on the spot market, has risen dramatically since the start of the year. On Jan. 1, 2021, volatility was at 66.87%. On Sunday, Jan. 24, that number hit 152.67%, the highest since April 2020’s coronavirus-induced market crash. It’s also much higher than bitcoin’s 106.33% volatility as of Jan. 24.

Ether and bitcoin’s 30-day volatility the past year.
Source: Shuai Hao/CoinDesk Research

Greg Magadini, chief executive officer of data aggregator Genesis Volatility, said that while the increased price fluctuations might be an opportunity for some traders, he’s cautious about any bearish downside. 

“We noted in our newsletter that ETH volatility is historically very high but we are cautious to short it, compared to BTC,” Magadini told CoinDesk. “ETH has room to run. A spike to over $2,000 in quick fashion is definitely in the cards for ETH.”

Other markets

Digital assets on the CoinDesk 20 are mixed Monday. Notable winners as of 21:15 UTC (4:15 p.m. ET):

  • Oil was up 1.3%. Price per barrel of West Texas Intermediate crude: $52.72.
  • Gold was flat, in the green 0.01% and at $1,854 as of press time.
  • The 10-year U.S. Treasury bond yield fell Monday to 1.030 and in the red 6.3%.

The CoinDesk 20: The Assets That Matter Most to the Market

Hawaii to Let More Crypto Companies Join Regulatory Sandbox

Hawaii is letting more companies play in its no-license-necessary digital currency sandbox.

The state reopened applications for Digital Currency Innovation Lab (DCIL) hopefuls on Monday, raising the possibility that yet more crypto exchanges and service providers could soon do business in the historically restrictive-to-crypto islands.

State law requires crypto companies maintain cash reserves equivalent to their digital currency holdings, an unreachable bar for even the largest exchanges. But sandbox participants are exempt from that requirement, and from acquiring the usual money transmitter license, through June 2022.

“The process has been seamless,” BlockFi CEO Zac Prince told CoinDesk. BlockFi is one of the 11 inaugural sandbox members who received a “no-action letter” from Hawaii’s Division of Financial Institutions.

In a press release, Hawaii Technology Development Corporation acting executive director Len Higashi, who oversees DCIL alongside DFI and the Department of Commerce and Consumer Affairs, said COVID-19 hampered the program’s debut last March. But he said the excitement this time around is palpable.

Liam Grist, who owns local blockchain startup and sandbox participant Cloud Nalu, concurred. He said interest in bitcoin is currently surging in Hawaii as measured by Google trends, a phenomenon happening across the United States.

Cloud Nalu is launching a bitcoin brokerage and custody platform in Hawaii next month. That would have been impossible to do without without the sandbox’s regulatory clarity, Grist said.

DCAA did not immediately return CoinDesk’s emails.

More Institutional Investors Are Buying Ether, Seeing It as a Store of Value

Ether’s latest rally to all-time highs appears to be driven, in part, by the sort of institutional investors who piled into bitcoin in 2020 for its digital gold narrative.

More institutional investors are seeing ether as a store of value, according to Coinbase’s annual review for 2020. The crypto exchange noticed “a growing number” of its institutional clients have taken positions in ether, the native currency of the Ethereum network, for its strong returns. These clients predominantly bought bitcoin in 2020.

“The case for owning ethereum [ether] we hear most frequently from our clients is a combination of, first, its evolving potential as a store of value and, second, its status as a digital commodity that is required to power transactions on its network,” according to the report.

As industry leaders including Coinbase and Gemini continue to take a bullish view of ether, an increasing number of large investors are also exploring the sub-sector called decentralized finance (DeFi), according to analysts and traders.

“I think the more adventurous institutions are exploring ethereum and DeFi after they looked at bitcoin,” Arthur Cheong, founder and portfolio manager at DeFi-focused crypto fund DeFiance Capital, told CoinDesk.

“Just like taking part in MicroStrategy’s $650 million convertible senior note offering last year was basically getting an almost-free call option on bitcoin, going long on ethereum is a way to get indirect exposure to DeFi protocols,” Denis Vinokourov, head of research at digital asset prime broker Bequant, said. “Not everyone is comfortable with the risks that are still associated with DeFi, but the hyper growth of these projects boosts activity on the Ethereum network and, thus, supports capital appreciation.”

Adding to the thesis that institutional investors are growing more interested in ether, the CME announced in December it will launch ether futures contracts next month. An ether-based derivatives products on one of the world’s largest regulated futures exchanges catering to an institutional crowd will give customers an opportunity to hedge their spot positions, reduce their overall risk of investing in ether and provide a venue for them to take speculative positions.

CME’s new ether futures contracts could also be one reason behind the drop on the Grayscale Ethereum Trust’s premium to the underlying value. The price gap recently slipped to a record low, according to data from on-chain data site Skew.

“The launch of CME futures will allow the institutional crowd to structure basis plays to those that have been so prevalent with bitcoin,” Vinokourov said. “This competition, together with the fact that a digital assets-based exchange-traded fund (ETF) appears more plausible, given the growing institutional appetite, may also continue to suppress premiums on Grayscale products.”

Grayscale is a subsidiary of Digital Currency Group, CoinDesk’s parent company.

While there’s much evidence that large ether investors have been accumulating ether and helping to push the cryptocurrency to its new all-time high this week, analysts and traders who spoke to CoinDesk largely attribute the rally to renewed demand from crypto natives.

“The ether rally is more organic, and driven more from within the crypto industry than the bitcoin move over the past several months,” Chad Steinglass, head of trading at crypto trading platform CrossTower, told CoinDesk. “There are many crypto specific traders that are looking at the ether/bitcoin ratio and are moving allocations from bitcoin to ether as bitcoin has cooled off recently.”

Ethereum 2.0 staking is another factor that has driven these crypto natives’ appetite to hold ether because of the rewards they gain in the form of annualized interest on their holdings.

Although declining to specify whether the Ethereum 2.0 staking is driven by retail or institutional clients, Kraken’s director of banking and payments, Johannes Schmitt, told CoinDesk that more than 380,000 ether have been deposited by the crypto exchange’s clients since December, which reflects “a growing awareness in the unique utility underpinning” ether, he said.

Harvard, Yale, Brown Endowments Have Been Buying Bitcoin for at Least a Year: Sources

Some of the largest university endowment funds in the U.S. have been quietly buying cryptocurrency for the past year or so through accounts held at Coinbase and other exchanges, CoinDesk has learned.

According to two sources familiar with the situation, Harvard, Yale, Brown and the University of Michigan, as well as several others, have been buying crypto directly on exchanges. (Several Ivy League endowments took an interest in blockchain technology via crypto-focused venture capital funds back in 2018.)

“There are quite a few,” said a source who asked to remain unnamed. “A lot of endowments are allocating a little bit to crypto at the moment.”

Yale and Brown did not respond to requests for comment by press time. When reached by CoinDesk, the Harvard and University of Michigan endowments declined to comment. Coinbase also declined to comment. University endowments got a single mention in Coinbase’s annual report for 2020, but without naming any names.

Some of the university endowment funds in question may have held accounts with Coinbase for as long as 18 months, according to one source. 

“It could be since mid-2019,” the source said. “Most have been in at least a year. I would think they will probably discuss it publicly at some point this year. I suspect they would be sitting on some pretty nice chunks of return.”

University endowments are pools of capital accumulated by academic institutions, often in the form of charitable donations. These funds, which support teaching and research, can be allocated into various assets for investment purposes.

Harvard is the largest university endowment with over $40 billion in assets. Yale has over $30 billion, Michigan has about $12.5 billion, while Brown holds $4.7 billion. It is unknown how much each fund has allocated in crypto but it is likely a fraction of percent of their total assets.

Back in 2018, Yale University Chief Investment Officer David Swensen made headlines by backing two crypto-focused venture funds, one run by Andreessen Horowitz, and another launched by Coinbase co-founder Fred Ehrsam and former Sequoia Capital partner Matt Huang.

Several other universities followed Yale in backing crypto VCs, including Harvard, Stanford, Dartmouth College, MIT, University of North Carolina and Michigan. Clearly, some of those schools appear to be taking the next step by investing directly in crypto assets.

The second source, who is involved in the crypto hedge fund world, pointed to “a big change” over the past few months. “We are seeing defined benefit pension plans getting close to making allocations; we are seeing public pension plans getting close to making allocations,” they said.

“If I had heard that three years ago, I would have said it was wrong,” said Ari Paul, co-founder of BlockTower Capital, and previously an investment manager for the University of Chicago. “But a lot of institutions are now comfortable with bitcoin. They understand it and can just buy it directly, as long as it’s from a regulated entity like Coinbase, Fidelity or Anchorage.”

Bitcoin Donations to Navalny Surge After Russian Opposition Leader Is Jailed

The standoff between Russia President Vladimir Putin and his main opponent, Alexey Navalny, rose to a new level last week – and so did bitcoin donations to the dissident.

Navalny, a Russian politician and vocal critic of Putin, is also a successful bitcoin fundraiser in Russia, receiving 657 BTC in donations over the past five years. The pace of donations accelerated last week, after Navalny was arrested in Moscow and his team published an investigative report describing an over-the-top, luxurious, 168-acre estate with a palace that presumably belongs to Putin.

Bitcoin donations are not widespread in Russia, with only a handful of nonprofits raising money in crypto. Among them, Navalny’s fundraising campaign appears to be the most efficient, but even in that case bitcoin accounts for no more than 10% to 15% of all donations.

In the week since Navalny’s arrest, his wallet received almost 3.7 BTC, worth about $119,600 at press time, which is nearly three times as much as for the first two weeks of January. It’s also much more than the amount of donations the wallet received over the entire year of 2020, crypto news outlet Protos calculated.

“Both bitcoin and fiat donations spiked after the investigation release and [Navalny’s] arrest, and the share of bitcoin grew a bit because of a couple [of] large donations,” said Leonid Volkov, who is coordinating the work of Navalny’s volunteer network across Russia. One of these larger donations, according to Volkov, of one full bitcoin, came from Evgeny Chichvarkin, a Russian millionaire in exile and Navalny’s friend. Chichvarkin hadn’t returned CoinDesk requests for comment by press time.

Tens of thousands of Russians have taken to the streets to protest Navalny’s arrest in what has become the biggest protest rally in the country in almost a decade. Over 3,000 people have been detained as of Saturday, Jan. 23.

Under current Russian law, all street rallies must be sanctioned by the authorities; as a result, almost none are ever authorized. In recent years, a number of protesters were detained and imprisoned for conducting peaceful protests, which deterred many Russians from participating in such activities until the Jan. 23 rallies.

Tough homecoming

The support for Navalny, as well as the public outrage about his treatment by the Russian authorities, has been rising since he got back from Germany, where he spent several months recovering after being poisoned with a military-grade nerve agent, Novichok.

Soon after he woke from a medically induced coma in the Charite clinic in Berlin, Navalny’s team, together with Bellingcat and CNN, published an investigation naming the Russia’s FSB (secret service) officers who allegedly arranged the poisoning.

Navalny also announced he would return to Russia after his recovery. Russia’s prison oversight agency then demanded that Navalny’s parole be revoked and he be sent to prison on a 2015 criminal case that was overturned by the European Court of Human Rights in 2017.

On his trip back to Moscow, Navalny was followed by multiple news outlets broadcasting his journey minute by minute, as the plane left Berlin and headed to Moscow on Sunday, Jan. 17. After landing in the Sheremetyevo airport, Navalny got to the passport control area and was arrested there. After a court hearing, arranged inside a police station with no independent journalists allowed in, Navalny called for street protests.

Navalny was sentenced to 30 days in jail. Volkov announced new protest rallies will be held on Jan. 31 and Feb. 2.

We Have Entered the Age of Anonymous Crypto

Recently, following a change to Whatsapp’s privacy policy, hundreds of thousands of people from all over the world left for other services. Signal, an encrypted messenger service, saw so many sign-ups that it temporarily crashed.

This was followed by a mass exodus from social media, as Twitter and Facebook became embroiled in a debate on free speech and censorship, a chain of events that may signal a shift in how users value privacy.

Rachel-Rose O’Leary is a coder and writer at Dark Renaissance Technologies. She was a tech writer for CoinDesk from 2017 to 2018, covering privacy tech and Ethereum. She has a background in digital art and philosophy, and has been writing about crypto since 2015. The views expressed in this article are her own and do not necessarily reflect those of the publication.

Riccardo Spangi or “fluffypony,” the former lead maintainer of privacy-centric cryptocurrency monero, called this a “watershed moment” for privacy. “People are realizing that you don’t get privacy just handed to you. You have to stand up and take it,” he told CoinDesk.

For years, topics including anonymity, censorship resistance and decentralization were the purview of political extremists. Armed with a pessimistic, even paranoid outlook, the forefathers of cryptocurrency engineered tools, like Bitcoin, for a world where civilization had fallen.

But now, spurred on by an information crisis and compounding global unrest, privacy has entered popular consciousness.

As on the popular consumer-facing apps such as Signal, activity on the encrypted anonymous internet, the darknet, is on the rise. While it’s hard to estimate usage due to its anonymity benefits, Tor Browser was downloaded 10% more on average this January than last year. In the past 12 months, the number of hidden websites has increased 180%.

This rising popularity could be driving an increase in monero transactions. In December, darknet market Whitehouse reportedly announced it would no longer accept bitcoin payments, strengthening monero’s foothold as the cryptocurrency of choice for the darknet. 

In fact, despite being delisted from exchanges Shapeshift and Bittrex, monero’s price has steadily grown 140% in the past year, while its daily transactions have increased by a staggering 290%. Zcash has likewise increased nearly 70% in price. 

All of this is to say there’s a growing demand for privacy. What’s more, the privacy scene has never been more prepared for an influx of users. 

A new dawn

Privacy has always been a core value of the crypto-anarchist philosophy. Bitcoin itself was designed to be pseudonymous, but its privacy-protecting features are insufficient to protect users from blockchain analysis. 

In the past 10 years, fully anonymous cryptocurrency has emerged as a Holy Grail of blockchain research. Millions in research dollars have been committed, though until recently no purely private cryptos emerged without substantial trade-offs to scalability and decentralization.

Several small, incremental achievements are beginning to come to fruition. Litecoin is testing a potential privacy upgrade, Mimblewimble. Privacy coin Firo, previously named Zcoin, is pioneering new cryptographic research with its recent release of Lelantus.

Meanwhile, earlier this month, Zcash announced its plan to implement Halo 2, a groundbreaking upgrade that will allow the cryptocurrency to add new assets to its base layer, such as an anonymous stablecoin or wrapped versions of other cryptocurrencies – while Monero is also building toward a multi-chain paradigm, specifically with privacy implications for Bitcoin through atomic swaps.

Further, while Monero’s ring signatures reduce its anonymity, a new upgrade called TRIPTYCH will make this privacy leakage less of a concern.

Bitcoin, too, will see privacy-protecting enhancements with the long-anticipated rollout of its Taproot upgrade. When activated, Taproot will allow smart contracts written in the Bitcoin scripting language to appear like normal transactions, so more complex code can populate the blockchain undetected.

It’s not just traditional cryptocurrencies that are undergoing a renaissance. Privacy apps are proliferating on decentralized finance (DeFi) while private smart contract platforms like Secret Network and Aleo are enabling general purpose, programmable privacy. 

Can the state withstand a full-blown Bitcoin offensive?

All of these advancements are made possible by significant improvements in privacy tech, especially zero-knowledge cryptography. Having authored the first privacy-oriented Bitcoin wallet in 2013, Amir Taaki has been working on anonymity tech in crypto for nearly 10 years.

“Zero-knowledge is probably the biggest breakthrough in cryptocurrency since the invention of Bitcoin itself. It enables an entire new class of privacy applications that previously couldn’t exist before,” he said.

The darkening

Advances in privacy tech have the potential to revolutionize not just cryptocurrency, but all aspects of how we interact with the web. The internet is currently dominated by data harvesting and surveillance. In exchange for using a service, user data is collected by companies for increasingly surreal purposes, such as behavior prediction and control. 

By offering a new economic vision for technology, the cryptocurrency ecosystem has the potential to challenge this paradigm. Mixnet provider Nym Technologies is working in this direction, offering privacy-friendly applications the ability to monetize their services.

Still, these new vistas will not be without their challenges. For the last year, crypto has been awash with rumors and headlines foretelling an impending regulatory crackdown. 

In an interview that coincided with her statement that the European Central Bank (ECB) will release its own digital currency – the digital euro – within the next five years, ECB President Christine Lagarde called for global bitcoin regulation. Separately,  U.S. Treasury Secretary nominee Janet Yellen said that cryptocurrencies are a “particular concern” for terrorism financing, and stated the need to “curtail their use.”

Both the U.S. and European Union – formerly a privacy stronghold – have also floated rules that threaten end-to-end encryption and privately held crypto addresses.

If there was ever a need for strong, unhackable, privacy-preserving tools to be built, it’s now. 

Worst-case scenario

Regulatory pressure may have an unintended consequence by making privacy-preserving cryptocurrencies more attractive. In a scenario where crypto is banned, crypto will merely go underground, where it had its beginnings.

A nightmare scenario for an industry overrun by bankers, such a grim regulatory outlook is widely dismissed as FUD. Not only would this cripple the emerging cryptocurrency ecosystem financially, but it would severely damage its core value propositions: openness, accessibility, being permissionless.

Still, perhaps in anticipation of regulatory crackdowns, Bitcoiners are adopting an increasingly militant rhetoric. Rumors of an impending “privacy war” have been circulating on Twitter, with cryptocurrency advocates volunteering themselves for the front line. 

According to Taaki, such a confrontation is effectively preprogrammed.

“I don’t see a resolution between an emerging cryptocurrency industry and the state-backed fiat system,” he said, “These things are [at] loggerheads, and using anonymity to shield participants in a network is of vital importance to our success as a movement.” 

The developer of privacy-focused Bitcoin wallet Wasabi, Max Hillebrand, said he is confident Bitcoin’s users will step up to the challenge. Armed with advanced technology and an ideology capable of carrying its followers to the barricades, he wondered:

“Can the state withstand a full-blown Bitcoin offensive?”

Substack Newsletters Are Being Used to Spread Crypto Scams

When it comes to the “next big thing” for independent platforms, the newsletter platform Substack has been at the forefront of the charge. The company has lured big-name independent writers such as Casey Newton and Glenn Greenwald to the platform to start their own newsletters. 

Substack is now also being leveraged for its ease of use and reach by scammers to impersonate various cryptocurrency projects, encouraging those it reaches to “upgrade their smart contracts” and send funds to a proxy contract ID. 

The language across multiple newsletter emails was similar, just plugging in and playing with different project names, suggesting they had a similar origin. 

Scam Substack newsletter impersonates Gnosis

For a scam newsletter impersonating the project Gnosis, the dek of the newsletter reads, “The upgraded smart contract uses 71% less gas, supports updates thanks to proxy patterns and allows you to participate in future votes.” While the newsletter said no immediate action was needed, “GNO holders who update early will be eligible for the new liquidity rewards program, starting on January 20th and lasting one week.”

Screenshot of the imposter Gnosis Substack newsletter
(Wayback)

The Gnosis Twitter account tweeted that the newsletter was fraudulent. In the tweet, the Gnosis account told users not to interact with this Substack account, share their wallet address or send any funds. 

“Gnosis was alerted to the phishing attempt on Substack via Twitter, as we were one of many popular blockchain projects targeted,” said Gnosis Director of Strategy Kei Kreutler in a direct message. “We immediately contacted Substack and they took down the fraudulent account.”

When CoinDesk reached out to Substack regarding the account on Jan. 15, it noted the account was taken down but did not respond to questions regarding what preventive measures are in place for these types of situations. 

“We have permanently removed this account from the platform and any subscribers will no longer have access to the fraudulent Substack site,” the support team said. 

While that Substack post (archived here) has been taken down, it appears the scam account is still active and was able to post additional material as of Jan. 21. 

Other projects affected

Gnosis wasn’t the only project where this happened. 

Projects such as RenProject, Kyber Network, Synthetix, Quant, UMA “and probably more,” were also victims, according to cybersecurity researcher Avigayil Mechtinger of the firm Intezer. 

“This together with sending emails to relevant users is a whole infrastructure of its own and [the newsletters] used the same scam contract id – 0x093fAd33c3Ff3534428Fd18126235E1e44fA0d19.”

The scam impersonating Gnosis has already been seemingly successful to some extent though, with at least one responder to the Gnosis tweet admitting to being a victim and sending tokens to this proxy.  Another expressed surprise that Gnosis wasn’t the one sending these emails after receiving one. 

“We look forward to [Web 3.0] account tools becoming integral for providing trusted, unique and authenticated identity on the web so that such issues on other platforms arise less in the future,” said Kreutler. “This is why we built the Gnosis Safe, and we hope to see platforms like Substack beginning to adopt Web 3.0 technologies.”

Email phishing

Imitating emails so they look like they are coming from a legitimate source is a common practice, with the overall goal being for users to open them and give up information or money. Indeed, CoinDesk readers have been victimized by scammers sending out emails impersonating us

The Substack scam is a logical extension of this method, with the goal of reaching a large group of people with seemingly legitimate material. Scammers are often looking for new and convincing ways to target individuals. While people might pass over a classic “Nigerian prince” scam email, they may let their guard down when it comes to legitimate-looking emails from a popular newsletter site. 

With a limited number of moderators and Substack’s hands-off approach, it will likely be up to readers to keep an eye out for scams like these when they arise.