A regulatory win for once • Letter 113

Hi, this is Colton Dillion from Hedgehog, the {compliant superlative goes here 😉} platform for investing in the whole crypto market, not just buying individual coins. Before I launch in, sharing two Hedgehog updates:

We're collaborating with FTSE Russell, part of the London Stock Exchange Group, to make their Digital Asset Index suite available on Hedgehog. ETF Express covered the announcement: "Hedgehog customers can add FTSE Russell Digital Asset Indexes to their crypto investment portfolios, thus allocating capital to different segments of the crypto market based on asset size." Whether you prefer large, medium, small, or micro cap coins — or perhaps a mix thereof — we have a convenient index for you to use when constructing your portfolio.

This is in addition to CoinDesk Indices, and of course Hedgehog's own Stacks:

  • Total Crypto: More than 85% of the entire crypto market cap
  • Satoshi: Bitcoin, where it all started
  • DeFi: Peer-to-peer financial services on the blockchain
  • ETH Network: Assets built with Ethereum
  • Layer One: Core networks powering the crypto ecosystem
  • Yield Farming: Tokens that pool staked funds to generate rewards

Hedgehog is the easiest way to create and maintain a diversified crypto portfolio. And we'll keep adding options that improve and expand your investment possibilities. Watch this space!

Second, Hedgehog's legacy web app will be deprecated on September 30. If you need any help migrating to the mobile app — available on both iOS and Android — please reply to this email, I'm happy to walk you through it. If we’re missing any of the features you love we’ll be happy to prioritize them for you.

Seeing in Grayscale

Big news week for crypto. Everyone is buzzing about Grayscale's momentous victory:

The U.S. may be about to get its first spot bitcoin exchange-traded fund, after a federal court ruled that the U.S. Securities and Exchange Commission (SEC) must review its rejection of Grayscale Investments' attempt to convert the Grayscale Bitcoin Trust (GBTC) into an ETF.

Another CoinDesk article commented on the furor:

Crypto is salivating not only over the court's pro-ETF ruling, but anti-SEC comments. The top U.S. securities regulator fell "short of the standard," made "unexplained" calls and "failed to adequately explain" its argument. In particular, the SEC didn't make a good enough case for approving some bitcoin-related exchange-traded products (namely futures-based products), and not others.

It's gratifying for the community to get a regulatory win, even a preliminary one, when the past couple years have been so discouraging on that front. Coinbase CEO Brian Armstrong congratulated the CEO of Grayscale and quipped, "Strange world we live in where winning against this SEC in court is seen as a rite of passage in our industry."

In other SEC crypto news:

Regarding the latter case, Commissioners Hester Peirce and Mark Uyeda dissented, noting that the SEC does not "routinely bring enforcement actions against people that sell watches, paintings, or collectibles along with vague promises to build the brand and thus increase the resale value of those tangible items." They point out that NFTs "are not an easy-to-characterize asset class, particularly because they can give the owner a wide array of rights to digital or physical assets."

Everything is in flux. Regulators, however capricious they may seem to industry insiders, are an unavoidable reality, and their involvement applies an evolutionary pressure on the crypto industry. The entities that survive and thrive will be the ones that are compatible with the enforcement paradigm, shaped in response to the fates of their predecessors.

However, regulators do not act wholly unchecked, as pointed out in one of the CoinDesk articles I quoted earlier:

[T]he U.S. Court of Appeals has shown that the SEC is not the ultimate arbiter of crypto. The agency does not necessarily or automatically get the final word; the U.S. court system and better yet Congress can also offer legal interpretations. This is significant because of the boom and bluster coming out of SEC Chair Gary Gensler since he took office, and his willingness to say all of crypto – except bitcoin – is under the agency's remit.

Is a Bitcoin ETF imminent? That still remains to be seen. But it's looking a lot more likely after this week.

You may recall that Hedgehog is supervised by the SEC, as a registered investment adviser (a classification which implies no particular expertise). In our case, this establishes a clear legal mandate to do right by our clients, and a framework for what that means. When your business does fit what regulators know how to handle, cooperation can be mutually beneficial, including for the customers. Getting there takes time.

Quick Hits

A thought-provoking comment, though admittedly tongue-in-cheek, on how AI can affect markets, from Matt Levine:

AI models have the ability to learn from past data, but no emotions and so no emotional overreactions. The good news is that they do not get caught up in hype or panic. The bad news is that if everyone else gets caught up in hype or panic, the market will go up or down a lot, and the AI managers will miss it.

Friend.tech drama:

The platform is chugging along nonetheless, reporting that "about 20k key holders check rooms to read messages every day" and "The average active key holder spends over 30 minutes per day using friendtech."

Jacek, my Hedgehog colleague whose review of Friend.tech was in last week's newsletter, created a wallet tracker. The unrealized gain for his own account is approximately $275 (in ETH) 🤔

Last link: Coinbase outlines decentralization plan for Base with fault proofs and OP client diversity.


I hope you're having a good week!

Keep hedging,
— Colton


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