PayPal (PYPL) will let its business clients buy, hold and sell cryptocurrency directly from their accounts in the U.S., potentially opening up a larger market for the payments giant.

After letting its retail users do the same via PayPal and Venmo accounts for several years now, the company also saw demand from business owners to buy, hold and sell crypto, the company said Wednesday.

"Business owners have increasingly expressed a desire for the same cryptocurrency capabilities available to consumers," said Jose Fernandez da Ponte, senior vice president of blockchain, cryptocurrency, and digital currencies at PayPal in a statement.

The payments company will also allow U.S. merchants to externally transfer cryptocurrency on-chain to "eligible" third-party wallets, according to the statement.

To start, the service will be unavailable to business clients in New York State, the company said, without giving a timetable for when that would change. The company is one of the 20 or so recipients of the Empire State's notoriously stringent BitLicense. It also has a trust license from the state's Department of Financial Services.

Since 2020, PayPal has allowed consumers to buy, hold and sell cryptocurrencies directly from their accounts. Last year, it unveiled its U.S. dollar-denominated stablecoin, PayPal USD (PYUSD), which reached a $1 billion market cap this summer.

Read more: PayPal's Stablecoin Hits $1B Market Cap as Incentives Boost Activity on Solana

AI has an insatiable appetite for resources. It consumes vast amounts of power and data, with estimates of 460 terawatt hours in 2022 that are projected to increase sharply by 2026 to somewhere between 620 and 1,050 TWh. But, its most voracious demand is for compute: the processing power that fuels the training of complex models, the analysis of massive datasets, and the execution of large-scale inferences.

This computational hunger has reshaped many of our professional landscapes. In 2024, the global AI market surpassed $184 billion, with projections suggesting it could pass $800 billion by 2030 – a value comparable to the current GDP of Poland. ChatGPT, the industry’s most well-known product, famously reached 100 million active users within just two months of its launch in November 2022.

Yet, as AI products like ChatGPT multiply and grow, our perception of how AI operates is quickly becoming outdated. The popular image of AI – with sprawling data centers, enormous energy bills, and controlled by tech giants – no longer tells the whole story. This view has led many to believe that meaningful AI development is the exclusive domain of well-funded corporations and major tech companies.

A new vision for AI is emerging, one that looks to the untapped potential in our pockets. This approach aims to democratize AI by harnessing the collective power of billions of smartphones worldwide. Our mobile devices spend hours idle each day, their processing capabilities dormant. By tapping into this vast reservoir of unused compute power, we could reshape the AI landscape. Instead of relying solely on centralized corporate infrastructure, AI development could be powered by a global network of everyday devices.

Untapped potential

Smartphones and tablets represent an enormous, largely untapped reservoir of global compute power. With 1.21 billion units predicted to be shipped in 2024 alone, the true potential of spare compute this offers is hard to, well, compute.

Initiatives like Theta EdgeCloud for mobile aims to harness this distributed network of consumer-grade GPUs for AI computation. This shift from centralized computing to edge computing is a technical evolution that is capable of completely reinventing the way people interact with and power AI models.

By processing data locally on mobile devices, the industry stands to achieve far lower latency, enhanced privacy, and reduced bandwidth usage. This approach is particularly crucial for real-time applications like autonomous vehicles, augmented reality and personalized AI assistants. The edge is where new AI use cases will take off, especially those for personal usage. Not only will powering these programs become more affordable on the edge, but it will also become more reactive and customizable, a win-win for consumers and researchers alike.

Blockchains are designed perfectly for this distributed AI ecosystem. Their decentralized nature aligns seamlessly with the goal of harnessing idle compute power from millions of devices worldwide. By leveraging blockchain technology, we can create a secure, transparent, and incentivized framework for sharing computational resources.

The key innovation here is the use of off-chain verification. While on-chain verification would create bottlenecks in a network of millions of parallel devices, off-chain methods allow these devices to work together seamlessly, regardless of individual connectivity issues. This approach enables the creation of a trustless system where device owners can contribute to AI development without compromising their security or privacy.

This model draws on the concept of "federated learning," a distributed machine learning method that can scale to vast amounts of data across mobile devices while protecting user privacy. Blockchain provides both the infrastructure for this network and the mechanism to reward participants, incentivizing widespread engagement.

The synergy between blockchain and edge AI is fostering a new ecosystem that's more resilient, efficient, and inclusive than traditional centralized models. It's democratizing AI development, allowing individuals to participate in and benefit from the AI revolution directly from their mobile devices.

Overcoming tech challenges

AI training and inference can be done on a range of GPU types, including consumer grade GPUs in mobile devices. The hardware that powers our mobile devices has been steadily improving since smartphones hit the market, and shows no signs of slowing down. Industry leading mobile GPUs such as Apple’s A17 Pro and Qualcomm’s Adreno 750 (used in high-end Android devices like Samsung Galaxy and Google Pixel) are redefining what AI tasks can be completed on mobile devices.

Now, new chips known as Neural Processing Units (NPUs) are being produced that are specifically designed for consumer AI computation, enabling on-device AI use cases while managing the heat and battery power limitations of mobile devices. Add intelligent system design and architecture that can route jobs to the optimal hardware for that job, and the created network effect will be extremely powerful.

While the potential of edge AI is immense, it still comes with its own set of challenges. Optimizing AI algorithms for the diverse array of mobile hardware, ensuring consistent performance across varying network conditions, addressing latency issues, and maintaining security are all critical hurdles. However, ongoing research in AI and mobile technology are steadily addressing these challenges, paving the way for this vision to become reality.

Corporations to communities

One of the biggest complaints, and most just, as it relates to the development of AI is the incredible amount of power it consumes. Large data centers also require huge swaths of land for their physical infrastructure, and incredible amounts of power to stay online. The mobile model can alleviate many of these environmental impacts by using spare GPU in pre-existing devices – rather than relying on GPU in centralized data centers – is more efficient, and will produce less carbon emissions. The potential impacts as it relates to our environment cannot be understated.

The shift to edge computing in AI will also fundamentally change who can participate in supporting AI networks and who can profit off them. The corporations that own the data centers will no longer be in a walled garden. Instead, the gates will be open and access will be proliferated for individual developers, small businesses, and even hobbyists that will be empowered to run AI networks.

Empowering a much larger pool of users and supporters will also enable more rapid and open development, helping to curb the much discussed and much feared idea of stagnation in the industry. This increase in accessibility will also lead to more diverse applications, addressing niche problems and underserved communities that may be otherwise overlooked.

The economic impact of this shift will be profound. By allowing individuals and small to medium sized organizations to monetize their devices' idle computing power, new revenue streams will run deep. It also opens up new markets for consumer-grade AI hardware and edge-optimized software.

The future of AI innovation lies not in building larger data centers, but in harnessing the power that already exists in our pockets and homes. By shifting focus to edge computing, a more inclusive, efficient, and innovative AI ecosystem can emerge. This decentralized approach not only democratizes AI but also aligns with global sustainability goals, ensuring that the benefits of AI are accessible to all, not just a privileged few.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

Bitcoiners aren't usually the forgiving type – especially toward perceived apostates who ape into other cryptocurrencies. That's why Republican U.S. presidential nominee Donald Trump's visit last week to a beloved Bitcoin bar in New York appeared so well timed – to repair any lost credibility after he and his family started promoting a decentralized-finance project that appears rooted in other blockchain ecosystems.

ALSO:

Democratic U.S. presidential candidate Kamala Harris's policy is "N/A."

Telegram's turnabout.

EXCLUSIVE: Huddle01, a video-conferencing blockchain project taking on Zoom, aims to sell as much as $37 million of "media nodes."

Top picks from the past week's Protocol Village column:

$110 million of blockchain project fundraisings.

This article is featured in the latest issue of The Protocol, our weekly newsletter exploring the tech behind crypto, one block at a time. Sign up here to get it in your inbox every Wednesday.

Network news

Screenshot of the Zaprite invoice used by Republican U.S. presidential nominee Donald Trump to buy burgers and Diet Cokes at the bar PubKey in New York (PubKey/X)

LESSER EVILISM – It goes without saying that many Bitcoin purists do not like to mingle their business, politics or even company with users of other blockchains or cryptocurrencies. Which is partly why the Republican U.S. presidential nominee Donald Trump garnered so much scorn from Bitcoiners last week for promoting a very-much-NOT-Bitcoin decentralized-finance project, World Liberty Financial – complete with its own token, and a pre-mined allocation to insiders. "Trump launching a sh*tcoin may have been the final straw to lose my vote," tweeted Bitcoin-friendly author Mitchell Askew. Responses on the thread ranged from total agreement to what one might call lesser evilism – the rhetorical contrast of one bad option with an even worse option: "True but it’s that or WW3 with commie Kamala," wrote @FrictionlessBTC.

The DeFi dalliance threatened to undo much of the goodwill Trump built up at the Bitcoin Nashville conference in July, when he tossed out a series of red-meat pledges, including commuting the rest of Silk Road creator Ross Ulbrecht's life sentence and creating a "strategic national bitcoin stockpile." Multiple standing ovations ensued.

So it was fortuitous timing for Trump that his campaign scheduled a stop, later in the week, at the Bitcoin-friendly New York City bar, PubKey. According to the bar's official X account, Trump bought 50 smash burgers and Diet Cokes for people in attendance, at a total cost of $998.77 including tax and tip, and then paid for it all in bitcoin. Fox News posted a video of the entire scene, leading a sharp-eyed reporter from CryptoSlate to quickly point out that Trump's role mainly consisted of standing by at the counter while handlers actually performed the transaction, passing smartphones back and forth between them. Whatever. The bar crowd cheered. "Crypto burgers!" Trump said as he handed them out. A voice from behind the camera corrected him, "Bitcoin burgers!"

As much as it was a second chance for Trump to prove his Bitcoin bona fides, the choreographed transaction served as a sort of benchmark for the blockchain's evolution as a viable payments option for a retail-facing business in the U.S. Will Cole, head of product at the Bitcoin payments app Zaprite (who happens to be Bitcoin-friendly U.S. Senator Cynthia Lummis's son-in-law), described what he called the "Trump stack:" PubKey, running a node on Bitcoin's Lightning Network on Voltage Cloud, used Zaprite to provide an invoice for the purchase, and Trump paid using a Strike wallet. (Official spokespeople for the Trump campaign didn't respond to CoinDesk's email asking where the bitcoin originated from.)

Asked whether the episode might have helped erase any lingering disgust among Bitcoiners over the World Liberty Financial rollout, PubKey founder Thomas Pacchia didn't exactly dispute the premise of the question: "The other stuff that the family has going on is sort of outside our purview and scope," he said in an interview. "Everybody is on a journey toward understanding the difference between Bitcoin and crypto. I like to meet people where they are."

ELSEWHERE:

Caroline Ellison exits a Manhattan courthouse after being sentenced to two years in prison on Sept. 24, 2024. (Victor Chen/CoinDesk)

Former Alameda Research CEO Caroline Ellison was sentenced to two years in prison by a federal judge on Tuesday. The judge said Ellison, 29, who will also have to forfeit about $11 billion, could serve the sentence at a minimum-security facility near Boston, where her family lives. Ellison was a key witness in the government’s trial against her former boyfriend, FTX founder Sam Bankman-Fried, who was convicted on seven counts of fraud and conspiracy before being sentenced earlier this year to 25 years in prison.

Vice President and Democratic nominee Kamala Harris made her first remarks on crypto on Sunday before donors in New York City. (Her specific choice of term was "digital assets.") A person with knowledge of the talks between her campaign and crypto insiders told CoinDesk that the discussions about digital-asset policy remain high-level and aren't likely to produce a detailed stance before the election in early November. Stand With Crypto, an advocacy group whose industry partners include exchanges Coinbase and Gemini as well as Filecoin developer Protocol Labs, issued a rating of "N/A" on Harris's crypto policies, for "not enough information."

Telegram, the instant-messaging app popular with crypto-industry pros, made significant changes to its terms of service, chief executive officer Pavel Durov said in a post on the app on Monday. The app’s privacy conditions now state that Telegram will now share a user’s IP address and phone number with judicial authorities in cases where criminal conduct is being investigated.

Crypto exchange BingX has been hacked for a "minor" amount of assets and the exchange plans to compensate users for any loss, the firm's chief product officer (CPO) said in a message on X. On-chain data suggests nearly $43 million was stolen from the exchange in multiple tranches, with $13.25 million ether, $2.3 million BNB, $4.4 million USDT, among other being drained.

Former Grammy-nominated artist and entrepreneur Iggy Azalea will release Motherland, a new online casino that uses her MOTHER token, in November. Azalea unveiled the project alongside business partner Joe McCann, founder of crypto investment firm Asymmetric, and manager Reece Pearson at her Motherland Rodeo event, at Breakpoint in Singapore last Friday.

Huddle01, Blockchain Video Conferencing Project That Seeks to Outdo Zoom, Targets $37M Node Sale

Huddle01 CTO Susmit Lavania, left, and CEO Ayush Ranjan, on a Huddle video conference call. (Huddle01)

Huddle01, a blockchain project to provide decentralized audio and video conferencing – aiming to provide lower latency virtual meetings than Zoom and Google Meet – plans to raise as much as $37 million in a sale of network nodes.

The 49,600 "media nodes" being sold offer operators a way to contribute excess internet bandwidth the communication network, in exchange for token rewards. According to a litepaper, some 21% of the project's HUDL tokens will be distributed to media nodes.

“These nodes will power a network that already outperforms the incumbent Web2 competitors on latency where there is a large cluster of nodes, and is capable of improving lags across the globe,” Huddle01 CEO Ayush Ranjan said in the release, shared exclusively with CoinDesk.

The project is built using technology borrowed from the Ethereum layer-2 network Arbitrum. A test network will launch two weeks after the sale completes, according to the press release.

Huddle01 becomes the latest in a growing trend of blockchain projects conducting node sales as a way to raise funds while simultaneously decentralizing their networks.

GO HERE FOR THE FULL STORY BY BRADLEY KEOUN

Money Center

Fundraisings

Screengrab from Daylight blog post with examples of personalized transaction recommendations (Daylight)

Daylight, a project with an API that powers personalized transaction recommendations for crypto wallets like Coinbase Wallet, MetaMask, Zerion and OKX Wallet, has raised $6 million in a seed round led by Union Square Ventures and co-led by 1kx. Examples of recommended transactions (see images, above) include token mints, claims and quests. According to a blog post: "It’s like the home tabs of Netflix or Spotify, but with things to do onchain instead of movies or music."

Others (Details in Protocol Village column): Celestia Foundation ($100M, first on CoinDesk), WSPN ($30M), Drift ($25M), Darkbright ($6M).

Deals and grants

Deus X CEO Tim Grant (Deus X)

Crypto Investment Firm Deus X Capital Unveils DeFi Unit Which Will Start New Yield Generating Protocol

MicroStrategy Boosts Bitcoin Holdings With $458M Purchase, Upsized Convertible Note Offering to $1B

Polymarket Reportedly Seeks $50M in Funding, Mulls Token as Election Bets Surge

Data and Tokens

Sky Reconsiders Plan to Offboard Wrapped Bitcoin, After Chat With BitGo CEO

Ethereum Developers Confirm Plan to Split 'Pectra' Upgrade In Two

MicroStrategy Outpaces BlackRock's IBIT by Over 3x Year-to-Date

YouTube Page of India's Supreme Court Hacked to Promote XRP

*Regulatory and Policy

'We are Running Out of Time': U.S. House Democrat Urges Stablecoin Bill Compromise

Mango Markets Mulls CFTC Settlement Over Crypto Trading Violations

Protocol Village

Top picks of the past week from our Protocol Village column, highlighting key blockchain tech upgrades and news.

Praxis "Citizen Map" (Praxis)

Abra, a platform for digital asset services, has partnered with Praxis, described as "the first network state," to collaborate on real world asset tokenization, as well as DeFi services to network states, including those created on the Praxis platform. According to the team: "Praxis and Abra intend to create an on-chain database of real estate, businesses, citizenship, contracts, marketplaces and other on-chain DeFi (decentralized financial) services that interact seamlessly with both online communities and physical cities." Balaji Srinivasan, author of "The Network State," is one of Praxis's backers.

Bitcoin zero-knowledge rollup Citrea has deployed its BitVM-based bridge Clementine to the Bitcoin testnet. Citrea, which raised $2.7 million in seed funding led by Galaxy in February, aim is to use Bitcoin as a settlement layer to make it "the foundation for the world's finance," according to an emailed announcement on Tuesday.

Frankendancer, an early version of Jump Crypto's highly anticipated Solana validator client software, Firedancer, is live and contributing to the performance of the Solana blockchain, Jump's Chief Science Officer Kevin Bowers said Friday. Firedancer itself is running on testnet, Bowers said, indicating it has achieved minimum viability and is getting close.

Worldcoin, the blockchain identity network known for its iris-scanning orbs as well as its affiliation with OpenAI founder Sam Altman, introduced Face Auth, a new security measure for World ID. According to the team: "Face Auth is a private 1:1 face comparison that ensures only the person who verified their World ID at an orb can use it. It provides increased security for your World ID during actions like online purchases, financial transactions, secure sign-in applications and much more."

Aethir, a project for decentralized GPU cloud computing, and Filecoin Foundation are establishing an alliance to provide clients with enterprise-grade solutions to support their businesses with decentralized infrastructure, according to a blog post: "As part of our collaboration with the Filecoin Foundation, Aethir will explore GPU leasing to Filecoin’s storage providers, thus providing Filecoin’s infrastructure network with a reliable and secure source of GPU cloud computing supplies.

Calendar

Sept. 25-26: European Blockchain Convention, Barcelona

Sept. 30-Oct. 2: Messari Mainnet, New York.

Oct. 1-2: CV Summit, Zug, Switzerland.

Oct. 9-11: Permissionless, Salt Lake City.

Oct. 9-10: Bitcoin Amsterdam.

Oct. 10-12: Bitcoin++ mints ecash: Berlin.

Oct. 15-17: Meridian, London.

Oct. 18-19: Pacific Bitcoin Festival, Los Angeles.

Oct. 21-22: Cosmoverse, Dubai.

Oct. 23-24: Cardano Summit, Dubai.

Oct. 25-26: Plan B Forum, Lugano.

Oct. 30-31: Chainlink SmartCon, Hong Kong.

Nov. 9-11: NEAR Protocol's [REDACTED], Bangkok.

Nov. 10: OP_NEXT Bitcoin scaling conference, Boston.

Nov. 11-14: Websummit, Lisbon.

Nov 12-14: Devcon 7, Bangkok.

Nov. 15-16: Adopting Bitcoin, San Salvador, El Salvador.

Nov. 20-21: North American Blockchain Summit, Dallas.

Dec. 5-6: Emergence, Prague

Jan. 21-25: WAGMI conference, Miami.

Jan. 30-31: PLAN B Forum, San Salvador, El Salvador.

Feb. 19-20, 2025: ConsensusHK, Hong Kong.

May 14-16: Consensus, Toronto.

May 27-29: Bitcoin 2025, Las Vegas.

In an unprecedented turn of events, the worlds of hip-hop and cryptocurrency have collided behind bars, as P. Diddy, the rap mogul, finds himself sharing a cell with Sam Bankman-Fried, the disgraced crypto kingpin. It’s the kind of headline that would be dismissed as tabloid fodder — except it’s real. While the specifics of their alleged and convicted crimes differ dramatically, that two high-flying individuals could crash so spectacularly shows that no one is immune from accountability, no matter how much money or influence they wield.

The cellmate pairing is curious. Diddy, a cultural icon who redefined the music industry and expanded his empire into fashion, liquor, and entertainment, now has more in common with Bankman-Fried than he’d ever imagined. Bankman-Fried, once the face of crypto, now epitomizes its seedy potential. Their shared cell is a stark symbol of what happens when the wealth and fame that shielded them for so long finally crumble.

What’s also notable is the flock of attorneys now circling the high-profile cases of these men. High-powered attorneys love cases like this for a reason — they’re career-defining. Winning or even losing such cases ensures media attention and often leads to higher rates and bigger clients in the future. A celebrity client isn’t just a case; it’s a stage.

Legal teams will undoubtedly fight for the best outcomes for both Diddy and Bankman-Fried, but make no mistake, they are likely just as invested in their own notoriety. The spectacle of two different but equally high-profile figures sharing a jail cell only amplifies the prestige attached to these cases. For many lawyers, there’s a thrill in navigating the tension between public opinion and the law — and when their clients are household names, the stakes, and the rewards, are even higher.

In a world where public relations often overlap with legal strategy, high-profile cases like these are as much about shaping narratives as they are about verdicts. And in the court of public opinion, even a guilty man can still come out looking victorious — especially with the right attorney.

But beyond the headlines, the most important thing from a societal perspective is that we don’t see an Jeffrey Epstein repeat where the alleged co-perpetrators are kept protected from view indefinitely. The world needs to know who are major decision-makers potentially captive to blackmail for heinous misdeeds. Here’s hoping the media can keep from getting distracted by the hype and keep pressing for full disclosure this time around.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

XProtocol, Built on Base Chain, Unveils XForge as 'World's First Node-Operated DePIN Smartphone'

XProtocol, an entertainment-focused blockchain built on the U.S. crypto exchange Coinbase's Ethereum layer-2 network, Base, has unveiled what it says is "the world’s first node-operated DePIN smartphone." According to the team, the Web3 startup’s new Android device, XForge, functions as a fully operational blockchain node. Users can participate in the DePIN network directly from their phone, earning rewards, airdrops and cryptocurrency incentives: "XForge represents the next evolution in mobile devices, combining blockchain power with smartphone convenience."

Theta Labs Launches 'EdgeCloud for Mobile,' Implements AI Video Detection

Theta Labs, the developer behind the entertainment-focused blockchain project Theta Network, has launched EdgeCloud for Mobile, allowing Android users to contribute spare GPU power to the Theta EdgeCloud network and earn TFUEL tokens. According to the team: "Available on Google Play, the app lets users provide resources during idle times, supporting AI research in media, healthcare and finance. Using a Decentralized Physical Infrastructure Network (DePIN), Theta EdgeCloud cuts GPU-intensive task costs by over 50% compared to traditional cloud providers, offering scalable, decentralized AI model training and inference services." The blog post reads: "For the first time ever, the Theta team has implemented a video object detection AI model (VOD_AI) that runs on consumer grade Android mobile devices, delivering true computation at the edge and enabling unparalleled scalability and reach. VOD_AI is a computer vision technique that uses AI to analyze video frames to identify objects by scanning video frames, looking for potential objects and drawing bounding boxes around them. This process is similar to how the human visual cortex works." {{THETA}}

Protocol Village is a regular feature of The Protocol, our weekly newsletter exploring the tech behind crypto, one block at a time. Sign up here to get it in your inbox every Wednesday. Project teams can submit updates here. For previous versions of Protocol Village, please go here.

In September 2024, Galois Capital, a now defunct crypto hedge fund, settled with the SEC for $225,000 over “custody failures” related to safeguarding clients’ crypto assets. While the amount may seem small, the implications for the Registered Investment Advisor (RIA) community, digital asset industry and custodians are significant.

This case marks a pivotal moment in how digital asset custody is and will be regulated, and signals the SEC’s intention to bring crypto custody further under federal jurisdiction.

The SEC’s release on Galois Capital set forth that the hedge fund failed to ensure crypto assets were held with a qualified custodian, violating the Investment Advisers Act’s Custody Rule. Galois Capital improperly custodied assets at FTX, which held a South Dakota state trust license and was deemed “not a qualified custodian” by the SEC.

When FTX collapsed, customers lost access to their funds that were commingled with FTX’s assets.

The SEC’s Custody Rule has long been in place to protect investors’ funds by mandating RIAs custody funds and assets with a custodian that maintains segregation between client and firm assets. For decades, this rule applied primarily to traditional financial assets, but the rise of digital assets prompted the SEC to highlight its oversight over this new domain.

In 2023, the SEC proposed formal amendments to the Custody Rule to explicitly cover digital assets. While these changes are not yet finalized, the Galois Capital case demonstrates that the SEC is already holding firms accountable for not custodying crypto assets through a qualified custodian.

The message is clear: RIAs (registered investment advisors) managing digital assets must take immediate steps to align with the SEC’s custody standards or face similar disciplinary actions.

Qualified custodians: state vs. federal oversight

This raises the question of what constitutes a “qualified custodian” in the digital asset space? According to the SEC’s Proposed Safeguarding Rule, “A qualified custodian generally is a federal or state-chartered bank or savings association, certain trust companies, a registered broker-dealer, a registered futures commission merchant, or certain foreign financial institutions (“FFI”).” Many non-depository trust companies claim on their websites that they are “qualified custodians.” But many fail to specify whether this is a claim under state law or the Investment Advisers Act of 1940/SEC Custody Rule.

Read more: Nathan McCauley - What an SEC Proposal Means for RIAs in Crypto

Unfortunately, there isn’t a clear distinction of what licenses grant “qualified custodian” status under state or federal law as it’s up to the custodian to meet the threshold prescribed in the SEC’s Custody Rule. More concerning, RIAs may only realize they are using a non-qualified custodian when the SEC takes action against them, or the custody provider’s business falters.

This was the case for Prime Trust, a Nevada-chartered trust company that touted itself as a Qualified Custodian dating back to 2019. In 2023, it was found that Prime Trust was using money from customer accounts to cover millions in losses resulting from a combination of account mismanagement and a market downturn. The company would later declare bankruptcy. In the Galois example, FTX’s South Dakota state trust license came under the SEC’s scrutiny only after clients' funds were lost.

Ultimately, the strength of any custodial license is only as strong as regulators’ abilities to oversee the actions of the custodian, putting the burden of due diligence squarely on the RIA.

What RIAs need to do now

For RIAs managing digital assets, the Galois Capital settlement offers several clear takeaways:

Review Custody Arrangements: Custody standards, and the licenses that uphold them, are changing. Review current relationships to understand the requirements your custodial partner is required to follow, and the strength of the associated regulatory body.

Where Would You Keep Your Money?: Seek out custodians considered the 'gold standard' in the eyes of the law, or those that are held accountable by the resources federal agencies bring to the table.

Reassess Self-Custody Risk: We know the mantra: not your keys, not your coins. Self-custodying assets introduces risks such as human error, and may no longer be a viable option as federal oversight increases.

While the Galois Capital case highlights the potential pitfalls of improper custody practices, it also presents an opportunity for RIAs. As the SEC clarifies its expectations around digital asset custody, firms that proactively adopt the “gold standard” of custody can differentiate their digital asset offerings to clients while reducing the risk of SEC enforcement action.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

A group of former government employees and compliance officials, now working in the crypto industry, rallied in front of the United Nations on Wednesday to show support for Tigran Gambaryan, Binance's head of financial crime compliance who's been detained in Nigeria since February.

Gambaryan is being held as a representative of the company he works for, with prosecutors trying him on money laundering charges brought against Binance. He is being held in the Kuje Prison, which is notorious for holding terrorists and other criminals, where his health has deteriorated heavily; in a recent video, he was struggling to walk with a crutch. A spokesperson for his family said he has also suffered multiple infections, as well as a herniated disc in his back.

Despite this, the U.S. government only publicly acknowledged his detention earlier this month, though Secretary of State Antony Blinken has discussed Gambaryan with Nigerian officials in May, the New York Times reported.

Amanda Wick, a former federal prosecutor and government investigator who organized the protest, noted that Gambaryan used to work for the U.S. government.

Prior to his role at Binance, Gambaryan was an investigator with the IRS's Criminal Investigation wing.

"America has fought harder for people who committed crimes [in the countries they were detained in] than for someone who fought for his country," Wick said.

Nigeria prosecuting someone to get the attention of their employer is "truly unjust," said Chris Tyrrell, the chief risk and compliance officer at Ondo Finance.

Gary Weinstein, the founder of Infinity Advisory LLC and former state assistant attorney general, said all of the attendees present were in favor of consumer protections and "high-integrity" markets, including Gambaryan. He noted that Gambaryan had been invited by the Nigerian government when he visited in February and was given a "false assurance of safe passage."

"One cannot do their job if one is in fear of getting snatched by a nation-state," he said.

Read more: 'Why Are You Doing This to Me?': Detained Binance Exec Begs Prison Guard for Help in New Court Footage

Stablecoins will drive institutional adoption in Asia, Chainalysis CEO Michael Gronager said in an interview.

While Asia has greater user adoption, the U.S. is still the more influential geography.

Even so, the result of the U.S. presidential election in November "won't matter much."

SINGAPORE — Stablecoins will drive institutional adoption in Asia, "even if regulators are not happy with it," Chainalysis co-founder and CEO Michael Gronager said in an interview at Token2049 in Singapore. Yet, while more users in the region have leaped into cryptocurrency than elsewhere, the U.S. is still the industry's most influential geography.

Stablecoins, crypto tokens whose value is pegged to a real-world asset like the dollar or gold, underpin the crypto trading system. Also, because their value is fixed – or meant to be – they can be used as a store of value and a medium of exchange.

"One of the things we have seen as the biggest trends in crypto right now, and probably the killer app, is something as mundane as stablecoins," he said. "Two-thirds of all transactions in transaction volume on blockchains are stablecoins."

Chainalysis, a blockchain analytics company, regularly releases reports on the state of crypto and its adoption across the world. The most recent listed five Asian countries in the top 10 of the Global Adoption Index. India and Nigeria have kept the top two positions for two years in terms of grassroots crypto adoption, and Indonesia, a new No. 3, is the fastest growing.

"Last year, one or two banks in Japan said they wanted to launch a U.S. dollar-backed stablecoin within a year. It hasn't happened yet," Gronager said. "I had conversations last week in Japan and now we have 10 banks wanting to launch such stablecoins.

"Why hasn't it happened yet? (Because) banks are slow. They talk to the regulator."

Regulators definitely have "some level of concern" and many things will need to be ironed out, he said. In the meantime, banks have to face growing competition from stablecoins when it comes to remittances, according to Gronager.

While Asia appears to dominate in terms of adoption, the U.S. which ranks fourth in the Chainalysis report, is the most influential region because that's where the trading volumes come from and the crypto economy looks to institutions like the U.S. Congress and Securities and Exchange Commission (SEC) for big signals.

"The real volume of crypto is tied to countries like the U.S. and others," Gronager said. "The story we are trying to tell you is more like saying crypto users per capita. So basically, how many people using [crypto] within the country. The adoption is, like, who's holding crypto for the average people in countries. In the U.S., that's less than it is, for example, in India."

Despite the regulatory influence and despite crypto influencers' focus on the U.S. presidential candidates' positions on the industry, the November election isn't a big deal, Gronager said.

"It won't matter much," whether Donal Trump or Kamala Harris wins, Gronager predicted. "Just getting on the other side" of this election will be healthy for everyone."

Read More: India and Nigeria Lead the World in Crypto Adoption Again, but Indonesia Is Fastest Growing: Chainalysis

“The time has come,” stated Fed chairman Jerome Powell back in August at the Jackson Hole central bank symposium. Last week, the Fed cut its federal funds target rate by 50 bps to 5.00% p.a. (upper limit) which was slightly more than markets had priced in before the FOMC meeting. In other words, the Fed positively surprised markets with this rate cut.

It is quite likely that the Fed is just getting started with rate cuts. At the time of writing, the market already expects 3 additional cuts (75 bps) by year-end and another 5 cuts (125 bps) next year through December 2025. The Fed has also telegraphed additional cuts via its latest Summary of Economic Projections (SEP) (aka “dot plot”).

Nonetheless, despite this more-than-expected interest rate reduction of 50 bps, it is quite likely that the Fed still remains “behind the curve.”

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For instance, a standard Taylor rule based on the unemployment rate and core PCE inflation implies that a fed funds target rate of around 3.6% p.a. is already warranted based on the underlying economic and inflationary momentum.

In addition, the latest fund manager survey by Bank of America indicates that monetary policy was still “too restrictive” in September 2024 – in fact, the most restrictive since October 2008 according to this survey.

There still remains an increased risk of a recession as several reliable indicators such as the prominent “Sahm rule” remain triggered.

That being said, our quantitative analyses imply that global growth has become less relevant for the performance of bitcoin while other factors like monetary policy or the US dollar have become more important.

In other words, a US recession might not be as negative as widely anticipated for bitcoin and other cryptoassets. To the contrary, it may lead to even more Fed rate cut expectations and US Dollar weakness which could provide even more tailwind.

With the latest move by the Fed and other major central banks, the global liquidity tide is clearly turning; global money supply has already reached new all-time highs and is accelerating. Expansionary money supply growth periods are usually associated with bitcoin bull runs.

The re-steepening of the US yield curve which tends to be a recessionary indicator is also an indicator for increasing liquidity and therefore bullish for scarce assets like bitcoin.

What is more is that the increase in global liquidity is coinciding with the increasing supply scarcity of bitcoin which has been intensifying since the latest halving in April 2024.

Our analyses have shown that there tends to be a significant lag between the halving event itself and the moment the supply shock starts to become significant, as the supply deficit only tends to accumulate gradually over time.

So, it appears as if there is a perfect confluence between an increase in potential demand via global money supply and a simultaneous reduction in available supply via the halving.

The market has been mired in “chopsolidation” – a choppy consolidating range-bound market – since the latest all-time high in March 2024. This was due to several factors such as government sales of bitcoin, Mt. Gox trustee’s distribution of bitcoins, or the macro capitulation in early August 2024.

In this context, the summer months have generally been one of the worst performing months for bitcoin historically with September being the worst month of the year.

However, Q4 tends to be the best month for bitcoin from a pure performance seasonality perspective and we also expect bitcoin to break out of this chopsolidation in Q4.

It seems as if the wait for a new break-out to the upside is finally over. The Fed pivot may have just delivered the perfect catalyst for that.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

Ethereum’s ability to host a wide-range of applications and assets has been evident for years, but the investment case for its native token, ETH, has become increasingly complex. In the wake of key protocol changes, particularly the hardforks activating EIP-1559 and EIP-4844, investors are asking how Ethereum’s adoption will translate into ETH’s long-term value.

While the platform has scaled, the relationship between its growth and ETH’s supply and demand — and thus its price — is no longer as straightforward as it once seemed.

You're reading Crypto Long & Short, our weekly newsletter featuring insights, news and analysis for the professional investor. Sign up here to get it in your inbox every Wednesday.

The EIP-1559 revolution: linking utility to token value

When Ethereum implemented EIP-1559 in 2021, it introduced a burn mechanism where the overwhelming majority of transaction fees (base fees) would be permanently removed from circulation. This created a direct relationship between Ethereum usage and ETH’s supply. As users paid for transactions on the Ethereum network, the burn would act as a deflationary force, reducing ETH’s supply and putting upwards pressure on its price.

In 2023, our valuation model at CoinShares showed that under the right conditions, where Ethereum generated $10 billion annually in L1 transaction fees, something it achieved at its 2021 heights, ETH could reach a value near $8,000 by 2028.

Since then, however, optimism has waned due to the Dencun hardfork and the rise of Layer-2s (L2), which have upended the fee burn and altered ETH’s value potential.

The rise of layer-2s: a double-edged sword

L2 platforms were designed to scale Ethereum by moving transactions off the main chain (L1) and onto faster, cheaper networks. Initially, L2s complemented L1, helping the network handle more transactions without clogging the base chain — like a pressure release valve giving balance in times of high usage.

But with the introduction of “blob space” in 2024, L2s could now settle transactions on L1 at much lower costs, reducing their requirement to pay expensive L1 fees. As more activity migrated to L2s, the supply burn that EIP-1559 was designed to instill began to drop, weakening the downward pressure on ETH’s supply.

The reality of Ethereum generating high L1 fees to support ETH’s value is now looking bleak. L1 transaction fees have steadily collapsed, leading to questions about what differentiates the services offered at each layer, and what will drive the L1 fee landscape moving forward.

A path forward: restoring the burn or adapting to new realities

Despite these challenges, there are potential paths forward to restore demand for L1 transactions and, in turn, ETH valuation.

One option is developing high-value use cases that rely on L1’s security and reliability, yet, given current trends, this appears unlikely in the near future. Another possibility is that L2 adoption grows so rapidly that the sheer volume of transactions compensates for the discounted fees — but this would require extraordinary L2 growth, beyond near-term expectations.

The most likely, and perhaps the most controversial, solution is repricing blob space to increase L2 settlement fees. While this would restore some of the L1 supply burn, it risks upsetting the economics of L2s that have been key to Ethereum’s recent success and enhanced its ability to compete as an ecosystem with alternative platforms (like Solana, Binance Chain, etc.).

The uncertain future of ETH

While L2s have scaled Ethereum, they have also disoriented the mechanisms that tie ETH’s value to its utility. For investors, this means that ETH’s future depends on how Ethereum balances innovation with maintaining healthy economic policy.

For now, ETH’s investment case is unsettling, and risks remain high as the Ethereum community decides its path forward.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

Despite its estimated size of over $3.1 trillion in 2024, today's telecom industry is facing financial, technological, and infrastructural sustainability challenges. As an average of 26% and 29% of households regularly experience unreliable Wi-Fi or broadband and mobile data in their homes, respectively, connectivity problems and service unreliability force people to miss out on opportunities. Regardless of the high rates of unreliability, customers have been paying expensive prices for telecom services, which have further increased due to inflationary pressure.

This op-ed is part of CoinDesk's new DePIN Vertical, covering the emerging industry of decentralized physical infrastructure.

The telecom industry is also facing a rising threat of security breaches, with a two-fold increase in confirmed security incidents between 2022 and 2023. In fact, the personal data of an estimated over 74 million US telecommunications clients was leaked on the dark web last year. Fortunately, DePIN can provide an effective way to tackle this ongoing challenge with a more resilient and distributed infrastructure that promotes reliable, cost-efficient, and scalable connectivity solutions for telcos.

How DePIN works in the telecom industry

With Messari estimating its total addressable market to be over $2.2 trillion today and exceeding $3.5 trillion by 2028, the DePIN sector decentralizes the ownership and control of real-world physical infrastructure via blockchain technology.

In the telecom industry, a DePIN solution could enable participants to provide network connectivity by purchasing and setting up antennas or hotspots. These devices are all connected to a decentralized network, where their operators receive token rewards in exchange for service coverage. Money is not printed out of thin air, as incentives are covered by the fees users pay for utilizing the network.

With crowdsourced infrastructure, providers don’t have to invest in the deployment and maintenance of new or existing hardware. Doing so helps telcos offload traffic from their current ecosystems without incurring further CapEx or operational expenditures (OpEx).

At the same time, additional coverage can be created for a fraction of the price of traditional services by incentivizing individuals and communities with token rewards. Obviously, the coverage of DePINs is currently limited compared to the massive networks of telco giants. However, given sufficient distribution, they have the potential to deliver equivalent service levels while offering cost-efficient prices for consumers and enterprise clients.

Since the community is in charge of infrastructure development, DePINs can scale more efficiently than traditional telecom networks. There is no need to sign lease agreements or evaluate whether it makes sense financially for the telco provider to extend its services to a new region. Instead, network participants will handle this task and bear its costs, making expansion feasible even to locations that have long been underserved by traditional infrastructures.

From the perspective of DePINs, their business model doesn’t necessarily involve direct competition with telecom providers. Instead, they can tap into telco giants’ established infrastructures to offer users a decentralized, resilient, and efficient telecom solution at a fraction of the costs of conventional solutions. Simultaneously, while telcos can use this opportunity to generate additional revenue, it allows DePINs to expand their networks, further lowering the costs and increasing service quality.

In fact, a collaborative model is more viable for DePINs in their early stages of development than a competitive one. Even after a couple of years of active infrastructure deployment, their connectivity and reliability won’t be able to match the established networks of telco giants, which have been built and maintained for tens of years. This doesn’t mean that DePINs are slow to expand. On the contrary, it will take some time for them to survive on their own in the telecom market. So, for the time being, decentralized telecom networks will complement traditional telco infrastructures rather than replace them.

DePIN’s advantages over traditional telecom models

By embracing blockchain technology and decentralization, DePINs eliminate traditional telecom infrastructures' single points of failure, which attackers have repeatedly exploited in data breaches. Instead of a central server, data is distributed across thousands (if not millions) of devices in the ecosystem, making it extremely challenging and expensive to gain access to customers' records, install malware, or disrupt the network's stable operation in other ways.

The DePIN model is not just more secure, but it can also accelerate telecom infrastructure development. With the right token incentives, DePINs can deploy their networks at a substantially faster pace than conventional telcos, leading to more rapid expansion and improved service coverage over time. Designed to reward ecosystem participants for building and maintaining telecom infrastructure, these incentives make telecom infrastructure development less CapEx- and OpEx-heavy. In addition to distributing infrastructure deployment and maintenance across a decentralized network of participants, crowdsourcing hardware further reduces the costs of telcos.

DePINs can also fill service coverage gaps, especially in remote areas and locations where traditional infrastructure deployment and maintenance would be too expensive for providers. With crowdsourced hardware and token incentives, decentralized telecom networks can expand connectivity to these underserved regions as well. By joining forces, DePINs can significantly extend the coverage of telcos and enhance service reliability and network performance, as well as decrease the frequency of outages through an interconnected telecom network that encompasses both conventional and decentralized infrastructure solutions.

Are telcos ready to embrace DePIN?

As I see it, what poses the most significant barrier is onboarding traditional telcos into the Web3 ecosystem. Despite a history of embracing innovation and new technology, the telecom sector largely operates within the Web2 framework. To address this issue, DePIN providers must reduce Web3 complexities and streamline the onboarding process for telcos.

Infrastructure deployment presents another challenge for DePINs. Many organizations within this sector believe that it is enough to simply incentivize the establishment and expansion of decentralized infrastructure. But this approach is not sufficient to solve telcos’ and their customers’ real problems with connectivity.

As a long-term solution, DePINs should not only incentivize infrastructure development but also guarantee that they are deployed in locations with genuine demand for connectivity. Simultaneously, incentives should be created to ensure enterprise-grade signal quality and network stability.

Despite all the challenges, I believe DePIN is the killer use case for enterprises adopting blockchain, and it has the potential to become the next trillion-dollar industry. After the mass adoption of DePIN, distributed ledger technology will have a transformative effect on the telecommunications sector, similar to the launch of the internet. In the end, it will lead to efficient infrastructure deployment and maintenance with automatic settlements and billing among all parties, fostering decentralization, independence, and seamless collaboration between multiple stakeholders.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

Visa has developed a new product to help banks issue fiat-backed tokens on the Ethereum network.

One of the first financial institutions to use the platform will be Spanish bank BBVA, who expects to launch a live pilot in 2025.

Payments giant Visa (V) has developed a new product to help banks issue fiat-backed tokens on the Ethereum network.

Visa Tokenized Asset Platform (VTAP) will enable the development of fiat-backed tokens powered by smart contracts to help digitize and automate existing processes that will then power the exchange of real-world assets (RWAs), according to an announcement seen by CoinDesk.

A bank would use Visa's new platform to purchase tokenized RWAs such as commodities or bonds with near-real-time settlement, using a token, the statement said. One of the first financial institutions to use VTAP will be Spanish bank BBVA, who expects to rollout a live pilot in 2025.

Visa's work in blockchain and digital assets is well established, with the company processing cryptocurrency payments in stablecoin USDC on Ethereum in March 2021.

Earlier this month, Visa became a partner of Brazil's central bank in its pilot project toward a central bank digital currency (CBDC).

The news was first reported by Blockworks.

Read More: U.S. Consumers Say Crypto Is Here to Stay, Stablecoins Maybe Not: Deutsche Bank

CoinDesk Indices presents its daily market update, highlighting the performance of leaders and laggards in the CoinDesk 20 Index.

The CoinDesk 20 is currently trading at 2031.97, up 1.4% (+28.18) since yesterday's close.

Nineteen of 20 assets are trading higher.

Leaders: LINK (+7.1%) and HBAR (+5.7%).

Laggards: UNI (-1.0%) and ETH (+0.1%).

The CoinDesk 20 is a broad-based index traded on multiple platforms in several regions globally.

Retail bitcoin investors, particularly "crabs" and "shrimps," have accumulated 35,000 BTC in the past 30 days, highlighting increased confidence and participation from smaller holders.

With 40,000 BTC withdrawn from exchanges in the past 30 days, reduced liquidity suggests a potential supply squeeze, creating a bullish environment for future bitcoin price increases.

In the past 30 days, the Bitcoin {{BTC}} ecosystem has seen a significant rally in accumulation, with approximately 88,000 BTC being amassed on a net basis. This strong period of accumulation, which has persisted through much of September, is notable for being about seven times the monthly bitcoin issuance of around 13,500 BTC. Such intense accumulation has not been seen since Q4 2023, a period that saw a rapid increase in bitcoin's price.

A deeper analysis of this net accumulation reveals that retail investors, particularly smaller holders, are playing a significant role. Investors with less than 10 BTC, often categorized as “crabs” (owning less than 10 BTC) and “shrimps” (owning less than 1 BTC), have collectively accumulated 35,000 BTC in the past 30 days. This trend of retail accumulation has been ongoing since May, underscoring the growing confidence and participation of smaller investors in the market.

Another factor providing a tailwind for bitcoin's price is the substantial outflow of bitcoin from exchanges. Around 40,000 BTC have left exchanges in the past 30 days, signaling reduced liquidity. When bitcoin is withdrawn from exchanges, it can indicate that holders intend to keep it off the market, reducing selling pressure and creating a bullish environment for future price increases as 74% of the circulating supply is considered illiquid.

This combination of retail accumulation and exchange outflows suggests that bitcoin's current momentum could continue to strengthen in the coming months.

Sale of as much as $8 million of nodes to whitelisted buyers would begin on Nov. 6.

Additional node sales after that could increase total raised to $37 million.

Huddle01's "dRTC Chain" is built using the Ethereum layer-2 project Arbitrum's Orbit software stack, with a test network scheduled to launch two weeks after the node sale concludes.

Huddle01, a blockchain project to provide decentralized audio and video conferencing – aiming to provide lower latency virtual meetings than Zoom and Google Meet – plans to raise as much as $37 million in a sale of network nodes.

The 49,600 "media nodes" being sold offer operators a way to contribute excess internet bandwidth the communication network, in exchange for token rewards. According to a litepaper, some 21% of the project's HUDL tokens will be distributed to media nodes. Huddle01 is built using technology borrowed from the Ethereum layer-2 network Arbitrum.

The first sale of up 20,000 nodes, which would cost a total of $8 million, is set to begin in early November, with a whitelist sale starting on Nov. 6 and a public sale on Nov. 8, according to a press release shared exclusively with CoinDesk. If those are sold out, subsequent nodes could be sold to reach as much as $37 million.

A test network will launch two weeks after the sale completes, according to the press release.

“These nodes will power a network that already outperforms the incumbent Web2 competitors on latency where there is a large cluster of nodes, and is capable of improving lags across the globe,” Huddle01 CEO Ayush Ranjan said in the release.

Huddle01 becomes the latest in a growing trend of blockchain projects conducting node sales as a way to raise funds while simultaneously decentralizing their networks. Earlier this year, Aethir, a decentralized GPU cloud infrastructure provider, raised about $126 million in ether (ETH) by distributing node licenses, and since then projects including Sophon, CARV, XAI Games, Powerloom and more recently Sonic SVM have pursued the method to bring in fresh funds.

Built on Arbitrum Orbit

Huddle01, which previously had raised about $6 million in traditional fundraisings from investors including Hivemind, Balaji Srinivasan, Stani Kulechov, Dan Romero and Juan Benet, describes itself in the litepaper as "a fully decentralized, self-sovereign, borderless and open network that will provide the necessary framework for performant, cost-effective and censorship-resistant real-time connectivity."

The project's "dRTC Chain" is a new Ethereum-compatible blockchain network built using technology from the layer-2 project Arbitrum's Orbit software stack.

Purported benefits of the decentralized setup include avoidance of the "oligarchic practices" of "large corporations that exert unilateral price and supply dominance," as well as reduced costs and latency resulting from the "geographic disparity of data centers."

According to the team, Huddle01 boasts a latency of 13 milliseconds in New York City, compared to Google Meet’s 141 milliseconds, and Zoom’s 20 milliseconds.

One feature of the project is "token gated rooms," where only holders of specific fungible tokens or NFTs on Ethereum or Solana can join a virtual meeting space.

In August alone, the M2 money supply rose nearly 1%, and the Fed since has trimmed interest rates 50 basis points, with what looks like another 50 basis point rate cut coming in November.

Aggressive monetary easing by China and the U.S. Federal Reserve has driven asset price increases, with cryptocurrencies leading the charge since the recent FOMC meeting.

The growth of the M2 money supply, with a CAGR of 7% in the past five years, has been closely linked to the performance of the S&P 500 and other assets, underscoring the critical role of liquidity in driving market performance.

On Sept. 24, financial assets soared to record levels, among them the S&P 500, which reached a record high of 5,735 and gold, which climbed to $2,670 an ounce. The yellow metal, in fact, is now higher by 30% year-to-date, making 2024 the best-performing year for gold this century, according to Zerohedge.

But what is driving these continual rallies in financial markets? A closer look reveals that liquidity and money supply are key factors.

Central bank policies have significantly contributed to injecting liquidity into the global economy. As of Sept. 25, the combined balance sheets of the top 15 central banks worldwide exceeded $31 trillion, a level last seen in April 2024. This figure has been on the rise since July, reflecting a substantial monetary stimulus primarily in response to economic challenges and uncertainties, which has been crucial in supporting financial markets.

China's commitment to substantial monetary easing, combined with the U.S. Federal Reserve's aggressive 50 basis point rate cut, has further fueled market momentum, making cryptocurrencies the best-performing asset since the FOMC meeting on Sept. 18. The CME FedWatch Tool now predicts a 60% chance of another 50 basis point cut at the Nov. 7 meeting, which would lower the fed funds rate range to 4.25-4.50%.

Another key indicator of liquidity is the M2 money supply, which includes physical currency in circulation, savings and time deposits, and money market mutual funds. According to Trading Economics data, M2 money supply has shown consistent month-on-month growth, a trend that began in February 2024. In August alone, the M2 money supply increased by nearly 1% month-on-month, highlighting the ongoing monetary expansion. This rise in the money supply has been crucial in supporting asset prices.

Historically, there has been a strong correlation between the S&P 500 and the M2 money supply, with both moving in tandem over the past five years. For example, during the early 2020 pandemic, M2 bottomed out at $15.2 trillion in February, just before the S&P 500 hit a low of around 2,409 points in March. A similar pattern occurred in October 2023, when monetary policy tightening led M2 to bottom at $21 trillion. Shortly afterward, the S&P 500 reached a low of 4,117. This connection highlights the critical role of liquidity in driving stock market performance.

The compound annual growth rate (CAGR) of the M2 money supply has been 7%, while the S&P 500 has achieved a CAGR of 14% over the past five years. Although this represents strong performance, it is overshadowed by bitcoin's {{BTC}} impressive CAGR of 50% during the same period. Despite its volatility, bitcoin's higher growth rate reflects its increasing prominence as an asset class, often benefiting from the same liquidity dynamics that drive traditional markets.

Central banks' expansionary policies combined with a rising money supply are fueling asset price appreciation across the board. Whether it’s gold, the S&P 500, or bitcoin, the correlation with monetary measures like M2 highlights how liquidity remains a key driver of asset performance in today’s economy. As long as central banks continue to provide support, financial markets may well continue to push higher, though the sustainability of this trend remains a question for the future.

This article originally appeared in First Mover, CoinDesk’s daily newsletter, putting the latest moves in crypto markets in context. Subscribe to get it in your inbox every day.

Latest Prices

CoinDesk 20 Index: 2,029.51 +0.74%

Bitcoin (BTC): $63,558.29 +0.07%

Ether (ETH): $2,6421.07 -0.81%

S&P 500: 5,732.93 +0.25%

Gold: $2,656.06 -0.08%

Nikkei 225: 37,870.26 -0.19%

Top Stories

Bitcoin traded at around $63,600 during the European morning having retreated from a peak of $64,780 late on Tuesday. BTC is little changed in the last 24 hours, while the broader crypto market has risen just over 0.85%, as measured by the CoinDesk 20 Index. A week on from the Fed's first interest-rate cut in four years, traders are optimistic that the move will create a snowball effect with other central banks taking similar steps. “It’s becoming clear that the Fed has finally started its rate cut cycle, removing such concerns. This implies that we may see more from the People's Bank of China as the Fed continues to cut rates and the negative rate differential narrows,” Presto Research said in a note.

Bitcoin ETFs saw inflows of $136 million on Tuesday, the biggest in almost a month. More importantly, the inflows were equivalent to 2,132 BTC, according to data by HeyApollo, which represents nearly five times the daily mined supply being removed from the market. Ether ETFs recorded $62.5 million in total inflows, the third-largest day for ether ETF inflows since their launch. This rebound came just a day after Ether ETFs saw their largest outflows since July. Nevertheless, ether ETFs remain firmly in the red, having experienced net outflows of $624 million since they listed on July 23.

Assetera, an investment and trading firm for blockchain-based financial instruments, tapped Polygon to power its secondary market RWAs platform. The platform offers tokenized assets, such as securities, funds and money market instruments in a regulated digital trading venue. Assetera will use Ethereum scaling network Polygon to secure transactions and utilize stablecoins for purchase, clearing and settlement to ensure the process is fast and efficient. The Austria-regulated company holds both MiFID II and virtual asset service provider (VASP) licenses, and plans to upgrade to meet MiCA standards, which would open the door to offering its services across the European Union. The platform is open to both retail and professional clients.

Chart of the Day

The chart shows the ratio between the U.S. Conference Board's leading and lagging economic indicators since 1958.

The ratio has tanked to a record low in a slide reminiscent of the previous eight meltdowns that portended recessions.

Source: Jeff Weniger, WisdomTree head of equities

- Omkar Godbole

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The hacker behind July's $230 million WazirX hack has nearly finished laundering the stolen funds, using Tornado Cash to obscure the transactions.

Just $6 million worth of ether is left.

WazirX has been restructuring following the hack, which compromised over 45% of its reserves, and is facing challenges in fund recovery and criticism for its crisis management.

Whoever was behind India’s biggest cryptocurrency hack is almost done laundering over $230 million worth of tokens, on-chain data shows.

A wallet holding funds stolen from WazirX, formerly one of the country’s largest exchanges by trading volume, in July, is down to only $6 million worth of ether {{ETH}}. Blockchain data from Arkham show the funds are usually moved to new wallets before being sent to privacy service Tornado Cash.

The hacker moved just over $50 million worth of tokens to Tornado in August and stepped up activity in September, as the chart below shows. The latest movement was a 3,792 ETH ($10 million) transfer to a wallet early on Wednesday.

Tornado Cash allows crypto users to exchange tokens while masking wallet addresses on various blockchains. The service, by itself, is not nefarious but is commonly used by criminals to clean an online trail that could lead to the identity of those moving stolen funds. Alexey Pertsev, Tornado Cash developer, was found guilty of money laundering by a Dutch judge in May and sentenced to 64 months in prison.

In July, WazirX was hit by a security breach in one of its multisig wallets, causing over $100 million in shiba inu {{SHIB}} and $52 million in ether, among other assets, to be drained from the exchange.

The stolen funds accounted for over 45% of the total reserves cited by the exchange in a June 2024 report. The exchange has since filed for a restructuring process in Singapore to clear its liabilities.

WazirX, still reeling from the financial and reputational damage, has engaged in efforts to recover the funds with limited success. It has faced criticism for its handling of the crisis, especially concerning user communication and fund recovery processes.

Wazirx x handle has now disabled comments. So much for being honest & remaining truthful.

— Aditya Singh (@CryptooAdy) September 23, 2024

Amidst this, Binance, which has had a contentious relationship with WazirX, clarified its lack of involvement in the security breach last week, emphasizing that it does not control or operate WazirX. That differs from what founder Nischal Shetty stated on X in August.

Bitcoin is trading on Korean exchanges at the steepest discount since October 2023, according to CryptoQuant.

Smart traders have shifted to high-beta altcoins, data tracked by 10x Research show.

Crypto traders on South Korea-based exchanges seem to have shifted from bitcoin {{BTC}} to alternative cryptocurrencies (altcoins) amid bullish analysts' forecasts in the wake of the recent U.S. interest-rate cut.

That's the message from analytics firm CryptoQuant's Bitcoin Korea premium index, which measures the price gap between Korean and offshore exchanges.

The index turned negative Wednesday, sliding to -0.55, reflecting the deepest discount since October 2023. In other words, bitcoin has fallen out of favor in Korea. Trading volumes over Korean exchanges suggest the same, indicating a shift toward high-beta alternative cryptocurrencies.

The chart by 10x Research shows daily Korean trading volumes over the past 40 days, with the most traded pair each day. Lately, traders have shifted from the bitcoin-korean won (BTC/KRW) pair to altcoins like UXLINK, CKB, ARK and PENDLE.

Traders elsewhere are focusing on altcoins as well, anticipating more Federeal Reserve rate cuts in the coming months.

"Quick-moving traders are seizing the opportunity to load up on their favorite altcoins, anticipating a strong Q4 rally," Markus Thielen, founder of 10x Research, said in a note to clients on Wednesday, noting the shift away from bitcoin.

"As Bitcoin surged past $60,000 and set its sights on breaking $65,000, savvy traders have accumulated undervalued altcoins, including TAO, ENA, SEI, APT, SUI, NEAR, and GRT," Thielen wrote.

Bitcoin ETFs recorded $136 million in inflows, with BlackRock’s IBIT contributing $98.9 million, equivalent to 1,548 BTC.

Ether ETFs saw $62.5 million in inflows, led by BlackRock’s ETHA with $59.3 million, third-largest day for Ether ETF inflows since launch.

Bitcoin {{BTC}} exchange-traded funds (ETFs) listed in the U.S. are doing their bit to boost supply scarcity in the crypto market.

According to the latest data from Farside Investors, bitcoin {{btc}} exchange-traded funds (ETFs) saw an inflow of $136.0 million on Sept. 24. Leading this surge was BlackRock's IBIT ETF, which experienced a significant inflow of $98.9 million, marking its largest inflow since Aug. 26. This brings IBIT's total net inflows to over $21 billion, reinforcing its number one position in the market. Other notable contributors included Fidelity's FBTC, with $16.8 million in net inflows, and Bitwise's BITB, which attracted $17.4 million.

More importantly, the inflows on Sept. 24 were equivalent to 2,132 BTC, with IBIT accounting for 1,548 BTC, per HeyApollo data. Given that the current daily issuance of Bitcoin is around 450 BTC, these inflows represent nearly five times the daily mined supply being removed from the market.

Overall, bitcoin ETF inflows have reached $17.8 billion, underscoring continued investor interest in these investment vehicles.

Ethereum ETFs

Ether {{ETH}} ETFs recorded $62.5 million in total inflows on Sept. 24, making it the third-largest day for Ether ETF inflows since launch. BlackRock's ETHA led the charge with a $59.3 million inflow, its largest since Aug. 9. This rebound came just a day after Ether ETFs saw their largest outflows since July, underscoring the volatility inherent in the crypto markets.

Despite the intense inflow day, total outflows from ether ETFs stand at $624.4 million, reflecting the broader uncertainty investors face with ether compared to bitcoin.

As of press time, bitcoin is trading at $63,803, while ether is trading at $2,624, according to CoinDesk data.