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Happy Friday, y’all! The Fed is unlikely to react any differently to yesterday’s U.S. inflation numbers, but vocal members of the Fed are echoing calls to raise rates by 1% by the end of this year. That could be bad news for the markets – because investors claim they care about interest rates (despite the fact that nothing has changed in the last few weeks.)

Bitcoin ($BTC.X) dropped over 3% to $42,000 on the news. Naturally, it took Ether ($ETH.X) with it – it plummeted 6% to $2,900. It wasn’t much better outside of the top two cryptos.

Super Bowl Sunday might offer some reprieve for investors, assuming that a handful of ads run by prominent crypto firms encourage buying this weekend. Honestly, that’s aspirational – but we’ll still have some fun, right?

Let’s take a look at today’s reads: 

  • The unanswered questions of Bitfinex Hack: How the DOJ will distribute the stolen $3.6B
  • Crypto crowdfunding is becoming popular among filmmakers. A chat with the COO of Goldfinch – an independent entertainment studio, and financier
  • After the latest funding round, Polkadot tries to come out of its shell

Here’s how the crypto market is looking:

Bitcoin (BTC)
$42,523.87
-3.53%
Ether (ETH) $2,927.34 -5.89%
Binance Coin (BNB)
$400.04
-4.37%
XRP (XRP)
$0.7755
-8.08%
Cardano (ADA)
$1.10
-5.64%
Solana (SOL)
$97.90
-10.03%
Terra (LUNA)
$52.86
+0.29%
Avalanche (AVAX) $83.15 -8.13%
Dogecoin (DOGE)
$0.1459
-4.53%
Polkadot (DOT) $19.16 -7.91%

Crypto Hack

How Will $3.6 Billion Stolen Bitcoin Be Returned?

This week, the Department of Justice announced its largest financial seizure ever: New York-based Ilya Lichtenstein and his” rapper” wife Heather Morgan are accused of laundering more than $4 billion in stolen cryptocurrency. The DOJ said that the majority of that belongs to victims of the famous 2016 Bitfinex hack.

The department undoubtedly achieved a big success, but it is still unclear how the victims will be reimbursed for their losses. There are over 94,000 Bitcoins at stake here – and thousands of people, including Bitfinex itself, are likely to clamor for the money. 

David Silver, a lawyer who specializes in financial and cryptocurrency-related fraud, told Bloomberg that he does not believe the DOJ will hand over $3.6 billion to an organization that cannot identify the owner of the bitcoin.

For now, Justice Department officials said they intend to establish a court process for victims to reclaim their stolen digital assets, which have appreciated significantly in value. Bitfinex said it would “seek legal counsel to claim the right to the return of the stolen bitcoins” because it claimed it had already paid investors for losses.

To some degree, Bitfinex is telling a half-truth – the exchange, and the crypto sector, was at a fairly primitive level in 2016. The company had no reserves, insurance, or resources to reimburse users – so, in true crypto fashion, they made a token to reimburse users. 

This token, UNUS SED LEO, surged after news of the DOJ’s recovery went live. However, not everybody who was compensated in this way would likely agree that it was fair and equitable compensation. After all, Bitcoin has risen many multiples since 2016 – and people might have felt they needed to take Bitfinex’s settlement.

The company indicated that – if it was able to recover the Bitcoin, it would use “80% of the recovered net funds to repurchase and burn outstanding UNUS SED LEO tokens.” That could drive up the price and make things more equitable, but it’s unknown if the DOJ will be open to handing off billions in Bitcoin to a company that was incapable of protecting it in the first place – even if they really are more resourced now.

Whatever the court decides about the future of $3.6 billion, the way that the DOJ handles this seizure will be unprecedented. However, it’s confidence-inducing – maybe even heartening – that U.S. politicians are recognizing cryptocurrency as valuable and reuniting people with their hard-earned crypto after all these years.


One-On-One

Crypto Crowdfunding Becoming Hit With Filmmakers

Raising money over the internet is pretty common, but when it comes to using cryptocurrency, it raises a few eyebrows. Goldfinch, an independent entertainment studio, and financier based in the UK has launched FF3, an extension of its First Flights funding program for emerging filmmakers. The first film project to launch on FF3 will be the horror-thriller “The Dead of Winter.” To shed light on the topic, we spoke to Chief Operating Officer, Phil McKenzie:

ST: Crypto crowdfunding is still in its early days. How did you come up with the idea of crypto crowdfunding for the short films?

PM: We had been looking at blockchain and tokens for a while, as it holds the potential to solve a lot of issues in the entertainment industry. When NFTs began to really trend in 2021, we thought this could be the practical or tangible way of getting the industry to adopt the tech.

In First Flights we already had a highly engaged creative community of filmmakers submitting projects, funding each other’s projects. There are increasingly limited options for emerging and established indie Filmmakers to develop, fund, and distribute their content. So we thought about how we can use web3 tech to really turbocharge what we already have to solve these problems.  That led us to the idea of creating a crypto crowdfunding platform that will allow Filmmakers to allocate tokens to Patrons who provide them with funding in crypto. Token holders will be given access to tiers of NFT rewards along with priority access to the finished content and more. 

ST: Filmmakers could have gotten monetary help from traditional sources? What difference does crypto crowdfunding make?

PM: There are fewer funding options for indie films and emerging filmmakers. What funding via crypto and the FF3 platform is trying to do is harness the power of web3, through tokens primarily, to better and more transparently reward patrons and ensure creative and commercial control remains with the filmmaker throughout the production and distribution process.

ST: How do you send the profit to investors? How does the accountancy work here? 

PM: This functionality is being added in. Firstly we need to go through the legal process of ensuring our platform is compliant with FCA regulation for the promotion and execution of the investment. We have done this for a number of retail investment products we have been involved in. This will then mean that when a patron purchases their project tokens, which gives them access to the reward tiers, they will also be given a pro-rata share of the revenues.  

For example, a filmmaker is willing to give us 50% of the film’s revenues to fully fund their project with 100 project tokens, then someone acquires 20 of these project tokens, that patron will get a 10% share of the overall project revenues, in addition to the other rewards they are given.  All of this will be baked into the smart contracts of the tokens. 

Ideally, payment for viewing the content will come in crypto, so it is easier to handle and distribute in line with the smart contracts, however, distribution channels and methods are slow to get here. So we are currently also in talks with various collections (who collect and distribute traditional film revenues) to provide their service and convert the fiat revenues into tokens for the patrons.

ST: What was the reaction of filmmakers when you told them about the plan? How did you convince them?

PM: Filmmakers love it as they like anything that can help them with funding. But in all seriousness, the problems we are trying to solve are major barriers to entry and barriers to continuing to do business in the sector. The filmmakers we have spoken to see FF3 and what we are doing as a way of solving these problems, and also helping to fund their content outside the very closed and traditional market structure that exists. So they fully buy into the vision. The challenge we have is onboarding and educating those filmmakers to use web3, which can still be complex to outsiders. However, our big focus in FF3 is to be as helpful and educational as we can be to the huge amount of crypto-curious people out there, breaking down the processes as much as possible for creatives and patrons alike. This was also our biggest learning from our first raise, we need to make things simpler and quicker, so watch this space for a more streamlined platform for our next raise.

ST: Crypto crowdfunding has a history of scams. What steps your organization has taken to combat the issue?

PM: First Flights has existed for a few years now and Goldfinch has existed for 8+ years, and all the team members are well-known within the entertainment industry. This sounds like a minor thing, but I think it is important that we have a reputation and profile that predates our involvement in web3 and shows us to be a credible business and people in general. And lastly, since the start of Goldfinch, we have set ourselves out to be a support for indie filmmakers and the conduit between investors and content creators, which is what our reputation is based on.


Blockchain

With New Funding, Polkadot Says It’s Time to Shine

Astar Network, a parachain on the Polkadot blockchain, has raised $100 million to provide liquidity for smart contract developers, as well as financial support and incentives. The news follows a raise led last month by crypto venture capital firms Polychain and Alameda Research.

Polkadot is a blockchain for blockchains; it acts as a sort of “chain for chains.” These chains, called parachains, can operate with different rules and standards than the base Polkadot network – and Astar is one of these chains with smart contract functionality.

Polkadot is mainly used for speeding up Ethereum transactions by running alongside each other. Having multiple lanes to process transactions leaves less chance for network overload – and that’s how it is different from the Layer 2 scaling solutions, which also help Ethereum transactions to go smoother. Additionally, Polkadot has also developed protocols that enable its network to interact with other blockchains. Since its blockchain network is flexible, it has a greater opportunity to adapt to specific needs.

This all seems promising; however, the reason why Polkadot remained underrated is that there was no major release of a bridge connecting Polkadot with Ethereum until the end of 2021. Therefore, it is not a surprise that crypto investors began looking at other projects from DeFi and newbies focused on NFTs in 2021. 

Through the new fundraising effort, Polkadot wants to indicate that its ecosystem is finally becoming relevant – they have arrived and are an experienced player. All eyes are on Polkadot’s development team, led by Ethereum co-founder Dr. Gavin Wood, to see what this project can accomplish for smoother transactions.


Tl; DR

Bullets For The Day

1. Stock trading will begin soon on FTX US: Users can now join a waitlist to learn about FTX US’s soon-to-be-launched stock trading platform. Brett Harrison hinted last month that stocks would be added, saying “hard at work on it.” In order to launch new business lines and explore strategic investments and acquisitions, the crypto exchange raised $400 million at an $8 billion valuation from investors, including Paradigm, Temasek, Multicoin Capital and SoftBank. Read more in CoinDesk.

2. Anti-Vax Mandate Truckers Raise $700K in Bitcoin: After their GoFundMe donations were blocked by the Canadian government, Canadian truckers who organized the “Freedom Convoy” in Ottawa raised close to 16 Bitcoin (roughly $700,000) from 4,877 donors. Donors include Kraken CEO Jesse Powell, who sent a whole Bitcoin to the cause, saying, “Mandates are immoral. End the madness. Honk Honk!” Read more in Decrypt.

3. Bitcoin mining can be sustainable:  In Norway, a Bitcoin miner is not only using hydroelectric energy to mine Bitcoin but also using the hot air generated by Bitcoin mining rigs to recycle and dry out chopped logs. The idea is to create Bitcoin with 100% green energy. Read more in Cointelegraph.