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In the aftermath of sanctions on Tornado Cash smart contracts, privacy-related coins outperformed in August while projects with stricter censoring lost market share.
Digital asset prices fell in August, as tech stocks performed the worst among all S&P 500 sectors. Amidst continued high inflation and more restrictive central bank policy, the Bitcoin/Nasdaq 30-day correlation remained elevated at 47% vs. the 5-year average of 9% and the 1-year average of 36%.
Despite the macro environment, institutions continue to allocate to the space – specifically worth noting is BlackRock’s partnership with Coinbase to provide crypto access on its flagship Aladdin platform. BlackRock also launched a private trust to enable direct spot Bitcoin access. Overall, listed crypto ETNs saw inflows in August, driven by Ethereum (ETH-USD, ETH, mkt cap $197B) momentum into the merge. Globally, more than 150 crypto funds, including hedge fund and venture strategies, have raised $36B in the first half of 2022, compared with $18B raised in all of last year. We count an additional $1B in venture capital raised in August. This dry powder is still keeping private valuations somewhat elevated vs. liquid tokens, in our view.
Negative news around regulation provided headwinds in the month, specifically the U.S. Treasury’s unprecedented sanctions of Tornado Cash smart contracts, which prompted Infura and Alchemy, two major Ethereum infrastructure providers, to block access to the Tornado protocol. One anonymous Tornado Cash user even sent Tornado Cash ETH to many famous, doxed ETH addresses in the hopes of bringing visibility and making a few innocent souls into criminals. GitHub deleted Tornado Cash code repositories and one Netherlands-based Tornado developer was arrested. We believe the Office of Foreign Assets Control’s (OFAC) action reflects pressure brought by the Biden Executive Order signed last March. This September 9 marks the 180-day deadline for…
