The Crypto Roundup: 29 August 2024

On August 28, Devin Finzer, CEO and Co-founder of NFT marketplace OpenSea, revealed on X that the U.S. SEC had issued a Wells notice to the company. A Wells notice is a formal alert from the SEC indicating potential enforcement action for securities violations, giving the recipient a chance to respond before making a final decision.

Finzer says the SEC contends that NFTs sold on OpenSea might be classified as securities. He criticized the SEC’s approach, emphasizing how it has the potential to harm a wide range of creators and artists who rely on the platform.

Finzer contextualized the SEC’s actions within its broader crackdown on the cryptocurrency industry, noting that major companies like Coinbase, Uniswap, and Kraken have faced similar regulatory pressures. He argued that the SEC’s expansion into NFTs marks uncharted territory and poses a significant threat to innovation within the digital art space. According to Finzer, the SEC’s stance not only jeopardizes OpenSea but also endangers the livelihoods of countless online artists and creatives who may lack the resources to defend themselves.

He strongly advocated for NFTs to be recognized as creative goods, listing examples like art, collectibles, video game items, and event tickets. He pointed out the inappropriate nature of regulating digital art as financial instruments, like collateralized debt obligations.

Finzer shared examples of NFTs’ positive impact, such as enabling student artists to transition to full-time careers and helping indie game developers create open markets for in-game items. He also mentioned the formation of global collector communities centred around digital ownership.

In response, Finzer announced that OpenSea would pledge $5 million to support NFT creators facing regulatory challenges, ensuring their ability to innovate without fear. He urged the SEC to reconsider its approach, reaffirming OpenSea’s commitment to defending the industry and its creators.

Lemniscap, a venture capital firm, has successfully raised a $70 million fund to support early-stage Web3 startups. This new fund will be allocated to a range of blockchain-based businesses, including those working on zero-knowledge infrastructure, consumer applications, emerging Bitcoin ecosystems, security innovations, and decentralized physical infrastructure (DePIN).

Lemniscap has a track record of investing in the crypto sector, having launched its first fund in 2017, just before the crypto market downturn of 2018. Since then, the firm has supported over 130 projects in the Web3 space, including prominent protocols like Avalanche, Fairblock, Celestia, EigenLayer, Euler, ParaSwap, and Axelar.

Accolade Partners, a fund of funds known for its investments in early-stage blockchain ventures, is backing the new Lemniscap fund. Historically, Lemniscap’s investment approach prioritizes long-term success, focusing on blockchain innovation, with the firm providing both capital and strategic guidance to the startups in its portfolio.

In 2024, the Web3 startup ecosystem showed signs of recovery after a challenging 2023, which was marked by regulatory uncertainty, bankruptcies, and a wider market downturn. Data from Pitchbook indicates that crypto startups raised $2.7 billion in the second quarter of 2024, with infrastructure projects such as Monad and BeraChain leading the way.

Although there has been a 12.5% decline in the number of deals, the amount of capital invested has increased, signaling that investors are becoming more selective, focusing on projects with significant potential. In 2023, crypto firms raised a total of $10.1 billion, and current trends suggest that startup funding could exceed that level in 2024, potentially reaching $10.8 billion by the end of the year.

Hilbert Capital, the asset management arm of Hilbert Group, has announced a strategic partnership with Gibraltar-headquartered Xapo Bank to manage a new Bitcoin-denominated hedge fund. This fund, set to launch in September, is projected to attract more than $200 million in initial investments from Xapo Bank and other contributors throughout 2024.

The Bitcoin-denominated hedge fund will use Bitcoin as the primary currency for all contributions, trading, and returns. Investors will contribute Bitcoin to the fund, with all transactions, including fees and distributions, conducted exclusively in Bitcoin rather than traditional fiat currencies like the US dollar.

This approach is particularly appealing to investors who prefer to hold and earn returns in Bitcoin, taking advantage of its potential as a deflationary asset with a limited supply of 21 million. Additionally, it eliminates the need for conversion between Bitcoin and fiat currencies, reducing associated fees and complexities.

The fund will provide corporates, businesses, and professional investors with the opportunity to generate returns in Bitcoin through institutional-grade structured credit arrangements, which are not typically available directly in the market. The fund will operate with lower fees compared to Hilbert’s other hedge funds, to broaden its appeal among a wider range of investors.

Joey Garcia, Director at Xapo Bank, emphasized the significance of this collaboration, noting that it addresses the needs of participants looking for structured opportunities to grow their Bitcoin investments. He highlighted the importance of Hilbert Capital’s expertise and operational integrity as key factors in the anticipated success of the fund. Niclas Sandström, CEO of Hilbert Group, remarked on the value of the strong working relationship developed with Xapo Bank over the past year, which has been instrumental in launching this new fund.