Are you not entertained? • Letter 133

Hail, hedgies, we who are about to buy, salute you! This is Colton from Hedgehog, the app that helps you buy baskets of cryptocurrency and automate your digital asset exposure wherever you custody funds.

The last two weeks have been a blood bath for digital asset markets, with Bitcoin dipping back below $40k and many assets losing value across the sector, contributing to a $300B haircut off the total market cap, or a ~16% drop in value to hit 2024 lows. Now, one never wants to try to catch a falling knife, but when assets are on a fire sale it can sometimes be a good idea to buy the dip.

Wherefore these troubled times:

What we do in life echoes in eternity

If it wasn’t enough that FTX lost a lot of people a lot of money back in 2022, now FTX is dumping on you again after one of crypto’s greatest triumphs to the tune of $1B in outflows. This is bad news for BTC holders, but FTT holders experienced a brief surge in price in response to the news, perhaps expecting some kickbacks if FTX finds its way back to solvency.

But FTX isn’t the only one dumping, Ethereum foundation also sold a little bit more than a 500th of their treasury while prices were hot. Nothing too surprising here, as Ethereum has to fund its operations too, but the broader market often takes these large movements of capital as bearish indicators.

Speaking of token foundations, Terraform Labs of Terra/Luna fame also just declared chapter 11 bankruptcy. The big explosions from 2022 are finally wrapping up their loose ends, and we can only hope that everyone is ready to put that chapter behind us.

Am I not merciful?

Speaking of that dark period in recent crypto history, the SEC definitely took notice by ramping up enforcements throughout 2023. Cornerstone Research released a report that says it all:

In 2023, the SEC administration under Chair Gary Gensler brought a total of 46 cryptocurrency-related enforcement actions, up 53% from 2022…a new record high since the first of such actions was brought in July 2013.

As of year-end 2023, monetary penalties against digital asset market participants totaled approximately $2.89 billion, of which $281 million were settlements reached in 2023.

Of the 124 defendants, most were individuals perpetrating scams, and to give you a flavor for who they went after, you can appreciate this little parable of a young pastor, Eli Regalado, reported by Coindesk:

The pastor – who had worked in digital marketing – responded in a video message posted on the project's website, sharing a sentiment that's unusual from a crypto founder cornered by government authorities: "Those charges are true."

"We sold a cryptocurrency with no clear exit," he said, explaining that God told him to build it and give investors ten times the money they put in. "We did. We took God at his word."

"The Lord told us to walk away from our parking company. ... [H]e took us into this cryptocurrency ... well, that cryptocurrency turned out to be a scam.... And I said Lord ... you told me to do this," he said in the video.

The couple also took about $1.3 million from more than $3 million raised for the project. Regalado said about $500,000 went to the Internal Revenue Services, and a "few hundred thousand" was devoted to a home remodeling project that "the Lord told us to do."

Busy little bees

If you were hopeful that the ETH ETFs were going to be coming soon on the heels of the BTC ETFs, the SEC has other plans. Blackrock, Fidelity, and Grayscale’s applications have all been deferred for public comment. This is a smart move, because much of what the SEC has been penalized for in recent cases has been trying to avoid due process, but it seems there new plan will involve malicious compliance, trying to drag out due process as long as possible.

It’s a shame, but we can only hope for so much good news.

What’s your favorite movies you’ve seen recently? I’m woefully behind on any kind of moving picture media.

Keep hedging,
— Colton